What closing costs include
Closing costs are every charge on page 2 of your Loan Estimate: the lender's fees, third-party services, government recording fees and transfer taxes, prepaid interest and insurance, and the first deposit into your escrow account. The CFPB's completed sample, for a $180,000 purchase with $162,000 borrowed at 3.875%, breaks down like this:[1]
| Section | What is in it | Sample |
|---|---|---|
| A. Origination charges | 0.25% points ($405), application fee ($300), underwriting fee ($1,097) | $1,802 |
| B. Services you cannot shop for | Appraisal ($405), credit report, flood and tax-service fees | $672 |
| C. Services you can shop for | Title search, title insurance, settlement agent, survey, pest inspection | $3,198 |
| D. Total loan costs | A + B + C | $5,672 |
| E. Taxes and government fees | Recording fees ($85); no transfer tax in the sample | $85 |
| F. Prepaids | 6 months of homeowners insurance ($605) and 15 days of interest ($262) | $867 |
| G. Initial escrow payment | 2 months each of insurance and property taxes | $413 |
| H. Other | Optional owner's title policy | $1,017 |
| J. Total closing costs | D + E + F + G + H | $8,054 |
That is 4.5% of the price, inside the 2% to 5% range the CFPB gives for closing costs.[2] Cash to close adds the down payment and subtracts the deposit already paid: $18,000 − $10,000 + $8,054 = $16,054.[1]
Prepaid interest and escrow: the math
Prepaid interest covers the days from closing to the end of the month, because mortgage interest is paid in arrears. The sample uses a 360-day year:
Interest per day = loan × rate ÷ 360$162,000 × 3.875% ÷ 360 = $17.44; × 15 days = $262
Closing late in the month means fewer days to prepay, but it does not lower what you pay overall: interest for those days would be due with the first payment anyway. The escrow deposit in section G is a starting balance of a few months of taxes and insurance; the sample collects two months of each.[1]
Which closing costs can change before closing
Most lender fees cannot go up after the Loan Estimate unless something changes, such as your loan amount or a rate lock expiring. Regulation Z sorts fees into three groups:[4][5]
| Fee group | How much it can rise | Examples |
|---|---|---|
| Zero tolerance | Cannot increase | Lender fees and points (section A), transfer taxes, services you could not shop for (B) |
| 10% cumulative | Total can rise up to 10% | Recording fees; shoppable services when you used a provider from the lender's list |
| No limit | Can change | Prepaid interest, insurance premiums, escrow deposits, services you shopped for on your own |
If the final Closing Disclosure exceeds these limits, the lender has to refund the excess. Compare the two documents line by line, using the same section letters as this calculator.
How to lower closing costs
- Compare Loan Estimates. The CFPB's home loan toolkit suggests getting Loan Estimates from more than one lender and comparing them; section A is the lender's own price.[3]
- Shop section C. See what drives the title part on title insurance cost. Title and settlement services can be shopped; in the sample they are the largest group at $3,198.
- Points vs. lender credits. Points raise closing costs to lower the rate; lender credits do the reverse. Check how long you will keep the loan before paying points.
- Ask for seller credits on a purchase, and enter them in the calculator to see cash to close.
Refinancing?A refinance has the same sections but no down payment and often no transfer tax. Put your costs into the refi calculator to see how many months of savings it takes to earn them back, and check your loan-to-value first. If you only need cash, a HELOC usually has lower closing costs than a cash-out refinance.
Closing costs on a refinance
Refinance closing costs are paid again on the new loan and can be about the same as on the original purchase loan; the CFPB's rule of thumb is to go ahead only if the lower rate earns them back in about two years.[3] If you may move in the next few years, you might not recoup the cost.[6] Rolling them into the loan avoids cash at closing but adds interest over the term. The mortgage payment calculator shows the payment on the larger balance.
Frequently asked questions
How much are closing costs?
Typically 2% to 5% of the purchase price.[2] On a $300,000 home that is $6,000 to $15,000. The CFPB's sample Loan Estimate shows $8,054 on a $180,000 purchase.
What is cash to close?
The total you bring to closing: closing costs plus the down payment, minus your earnest-money deposit and any seller or lender credits.
Can closing costs be rolled into the loan?
On many refinances, yes, if the loan-to-value limit allows it. On a purchase they generally cannot be added to the loan, but seller credits or lender credits (for a higher rate) can cover some of them.
Which closing costs are negotiable?
The lender's origination charges and points, and the services in section C that you are allowed to shop for, such as title and settlement services. Comparing Loan Estimates from several lenders shows how much they differ.[3]
Sources
- Loan Estimate: fixed rate loan sample (form H-24(B))
- Figure out how much you want to spend (Owning a Home)
- Your home loan toolkit: A step-by-step guide
- Regulation Z § 1026.19(e)(3), good-faith tolerances for Loan Estimate charges
- Can my final mortgage costs increase from what was on my Loan Estimate?
- Should I refinance? (handout)