Closing Costs Explained: What You Pay and What Can Change

What closing costs are

Closing costs are everything paid at closing other than the down payment: the lender's fees for making the loan, the third parties who appraise, search, insure and record, the government's transfer and recording charges, and the prepaid items that start the loan running: interest to the first payment, the first year's homeowners insurance and the opening deposit into the escrow account. Freddie Mac estimates them at approximately 2 to 5 percent of the purchase price. The Consumer Financial Protection Bureau (CFPB) says the buyer generally pays them, with two caveats: a seller who agrees to pay some usually gets a higher price, and a lender who pays some usually charges a higher rate.

Cash to close

cash to close ≈ down payment + closing costs (sections A to H) − deposits and credits already paid

A $400,000 purchase

Item	Amount	How
Down payment at 20%	$80,000	$400,000 × 20%
Closing costs at 2%	$8,000	Freddie Mac's low end
Closing costs at 5%	$20,000	Freddie Mac's high end
Cash needed, before credits	$88,000 to $100,000	down payment plus closing costs

Where in the range a loan lands depends on the state's transfer taxes, the title insurance rates, whether points are bought, and how much of the year's taxes and insurance must be prepaid at that closing date. The home affordability calculator adds a closing cost percentage to the down payment when it works out the cash needed, and the mortgage calculator shows the payment the loan behind it produces.

The two forms

Federal rules put the costs on two standard forms, described by the CFPB:

The Loan Estimate, a three-page form the lender must provide within three business days of receiving your application. It shows the estimated interest rate, monthly payment and closing costs, and because every lender uses the same form, it is the document for comparing offers.
The Closing Disclosure, a five-page form with the final loan terms and costs, which the lender must provide at least three business days before you close. Those three days are for comparing it with the Loan Estimate and asking about anything that changed.

Page 2 of both forms breaks the costs into lettered sections with the same numbering, which is what makes the comparison possible.

Sections A to H, and what may change

Section	Name	What is in it	After the Loan Estimate (CFPB)
A	Origination charges	what the lender charges to make the loan: application or underwriting fees and any discount points	cannot increase
B	Services you cannot shop for	required services where the lender picks the provider: the appraisal, credit report, flood certification, tax service	cannot increase
C	Services you can shop for	required services where you may choose the provider: title search, lender's title insurance, settlement or closing agent, survey, pest inspection	up to 10% in total if you use a provider from the lender's list; unlimited if you pick your own
E	Taxes and other government fees	recording fees and transfer taxes	recording fees in the 10% bucket; transfer taxes cannot increase
F	Prepaids	homeowners insurance premium, prepaid interest from closing to the first payment, property taxes due	can change by any amount
G	Initial escrow payment at closing	the opening deposit into the escrow account for taxes and insurance	can change by any amount
H	Other	owner's title insurance, home warranty, real estate commissions, HOA fees and similar items	can change by any amount

Section D totals A to C as loan costs, section I totals E to H as other costs, and section J is the grand total less any lender credits, shown as a negative number. The CFPB says plainly that it is illegal for lenders to deliberately underestimate the costs on a Loan Estimate, and the rightmost column is the enforcement: fees paid to the lender, broker or their affiliates, fees for required services you were not allowed to shop for, and transfer taxes cannot increase at all; recording fees and required third-party services chosen from the lender's written list cannot increase by more than 10 percent in total; and prepaid interest, insurance premiums, the initial escrow deposit, services you shopped for with a provider not on the list and services the lender did not require may change by any amount.

The limits fall away after a change in circumstances, the CFPB's examples being a different loan type or down payment, an appraisal that comes in higher or lower than expected, new debt or a missed payment affecting your credit, or income the lender cannot document; you then usually receive a revised Loan Estimate. Without such a change, if the final costs exceed the limits, you are entitled to a refund of the excess.

Prepaids and escrow are not fees

Sections F and G often make up a large share of the total and are the least like a cost: the prepaid interest is interest you would owe anyway, the insurance premium buys a year of cover, and the initial escrow deposit is your own money parked to pay the first tax and insurance bills. The guide what is escrow explains how that account is sized and what the rules allow the lender to hold. Points in section A are the other item that is not a fee in the usual sense: prepaid interest in exchange for a lower rate, which mortgage points works out to a break-even month. A loan with less than 20 percent down also carries mortgage insurance, part of which can appear among the prepaids; what is PMI covers what it costs and when it ends.

Ways the figure comes down

Shop section C. The lender must let you choose the provider for the services it lists there, and the title and settlement charges are usually the largest of them.
Compare Loan Estimates from more than one lender on section A, which is the lender's own price, and on the annual percentage rate on page 3, which folds the loan costs into the rate; the guide APR vs APY explains what that figure includes.
Negotiate seller credits where the market allows, remembering the CFPB's point that they tend to be priced into the purchase.
Close later in the month to reduce prepaid interest in section F, at the cost of a slightly later first payment date.
On a refinance, the same sections apply with no down payment; the refinance calculator divides the closing costs by the monthly saving to give the break-even month.

This guide follows the CFPB's descriptions of the Loan Estimate and Closing Disclosure and its page on cost increases, and Freddie Mac's estimate of the typical range. The Closing Disclosure for a particular loan is the document that governs it, and the three business days before closing are the time to read it.

Frequently asked questions

How much are closing costs on a house?

Freddie Mac puts closing costs at approximately 2 to 5 percent of the purchase price, which is the fee for the lender, the title and settlement work, the appraisal and the other parties, plus prepaid taxes, insurance and interest. On a $400,000 home that is $8,000 to $20,000, on top of the down payment. The exact figure for your loan is on the Loan Estimate within three business days of applying and on the Closing Disclosure at least three business days before you close.

Who pays closing costs, the buyer or the seller?

The CFPB says the buyer generally pays the closing costs, though the lender or the seller can pay some or all of them, and that neither does so for free: a seller credit usually comes with a higher purchase price, and a lender credit with a higher interest rate. Sellers have closing costs of their own, shown on the seller's side of the Closing Disclosure.

Can closing costs go up after the Loan Estimate?

Only within limits, and the CFPB says it is illegal for lenders to deliberately underestimate the costs on a Loan Estimate. Fees paid to the lender or broker, fees for required services you could not shop for, and transfer taxes cannot increase at all. Recording fees and third-party services you chose from the lender's list may rise by up to 10 percent in total. Prepaid interest, insurance premiums, the initial escrow deposit and services you shopped for on your own can change by any amount. The limits do not apply after a genuine change in circumstances, such as a different loan type or a lower appraisal, and if costs exceed the limits without one you are entitled to a refund of the excess.

What is the difference between the Loan Estimate and the Closing Disclosure?

The Loan Estimate is the three-page form the lender must give you within three business days of your application, with estimated loan terms, payments and closing costs; it is for comparing offers. The Closing Disclosure is the five-page form with the final terms and costs, which the lender must give you at least three business days before closing. The two use the same sections and line numbers, so the CFPB's advice is to put them side by side and ask about every line that changed.

Can I roll closing costs into the mortgage?

On a purchase the lender's closing costs can be reduced through a lender credit in exchange for a higher interest rate, which the Loan Estimate shows as a negative amount in section J; whether costs can be financed into the loan amount depends on the loan program and the appraisal. Either way you pay them, through the rate or through interest on a larger balance, and the refinance calculator and mortgage calculator show what the higher rate costs over the loan.

Sources

Written by Tobias, designer. Updated October 20, 2026.