What Are Closing Costs in a Mortgage?

Let’s break down what you’re really paying for on closing day.

If you’re getting ready to buy a home, you’ve probably heard the term “closing costs” thrown around. But what exactly are they—and how much should you expect to pay?

Pro Tip: Your down payment isn’t the only money you’ll need at closing.

A lot of buyers are surprised to learn that closing costs and prepaid items are separate from the down payment. So when we talk about your total funds needed to close, it’s really:

Down Payment + Closing Costs + Prepaid Items = Total to Close

Don’t worry—I’ll help you figure out exactly what those numbers look like for your specific situation, so there are no surprises on closing day.

Let’s unpack it all in plain English, so there are no surprises when you’re sitting at the closing table signing papers (and yes, you’ll sign a lot of them).

What Are Closing Costs?

Closing costs are the fees and expenses you pay when finalizing your mortgage—basically the costs to “close” the deal on your new home. These include a mix of lender fees, third-party services, and prepaid items like property taxes and insurance.

They typically range from 2% to 5% of your loan amount, depending on the price of the home, the loan program, and even your location. The Consumer Financial Protection Bureau also published this explainer.

A Real Breakdown of Typical Closing Costs

These items were pulled from two actual closing disclosures:

1. Lender Fees

Loan Origination Fee – A flat fee or percentage of the loan amount. Example: 1% of a $400,000 loan = $4000
Application/Processing Fee – $995 – Ask me how to get this waived!
Underwriting Fee – $597 to $1,995-Ask me how to get this waived!
Doc Prep Fee – $100-$275
Discount Points – Optional one-time fee paid to buy down your interest rate (e.g., 1.25% point = $6,875 on a $550,000 loan). For example, to buy the rate down by 0.25% one would normally pay roughly 1 point or 1% of the loan amount. This varies daily and by loan type. –Ask me about getting a customized closing cost analysis run to show you if points is a good idea for you.

2. Services You Cannot Shop For

Appraisal Fee – $405 to $1,050
Credit Report Fee – $79.80 to $150
Flood Determination/Monitoring – $20–$75
Tax Status Research – $80 – normally only for refinances
Homeownership Counseling Fee (for some loan types) – $75

3. Services You Can Shop For

Survey Fee – $85 to $1,000
Title Insurance Binder – $650
Lender’s Title Insurance – $500 to $720
Title Settlement/Closing Fee – $295 to $600
Courier/Recording Fee – $25 to $30

4. Prepaids

Homeowners Insurance (12 months upfront) – $1,209 to $4,354 – you select the insurance company.
Prepaid Interest – Based on daily rate; example: $124/day for 7 days = $869. For example; if you close on June 23rd, you pay 7 days of prepaid interest, then you skip July, and your first payment starts in August.
Property Taxes (often 6 months) – $631.80 or more depending on the State and county. Not normally charged in Texas.

5. Initial Escrow Deposit

Two to three months of:
- Homeowners Insurance ($100–$362/month)
- Property Taxes ($105–$354/month) Property taxes for a purchase are collected for the current year to date. The seller will credit the buyer for year-to-date taxes owed in section K.

6. Other Line Items

HOA Capital Contribution – $500
HOA Processing Fee – $150
Home Warranty – $450
Owner’s Title Policy – roughly 0.67% of the purchase price (optional but required if using a mortgage)

7. Government Fees

Recording Fees – $40 to $181
Transfer Taxes – Varies by state, example: $950

Can I Reduce or Offset These Costs?

Yes. Here are some strategies:

Ask for seller concessions to cover part or all of your closing costs. There are limits depending on the type of mortgage and occupancy.
Use lender credits by accepting a slightly higher interest rate
Pair your loan with a down payment assistance program that also includes closing cost help but this normally means a higher interest rate.
Shop for your lender, title services, and homeowners’ insurance

I’ll help you explore all these options when we review your scenario together.

Want to Estimate Your Own Closing Costs?

Let’s run the numbers together. Whether you’re buying or refinancing, I’ll give you a custom estimate with no pressure. Start your estimate right here or call Richard Woodward at 214.945.1066.