A closing cost is a payment that is needed to close on a home loan. It is not the same as a down payment. Click "Learn More" below to find out more about closing costs, what they are for, how to pay them, and more.

"Closing" is the last step in buying a home and getting a loan for it. It's also when the property officially changes hands from the seller to you. At Closing, you and everyone else involved in the mortgage loan deal sign all the necessary papers

Your Closing may include some or all of the following: real estate agents, your attorney, the seller's attorney, the lender's representative, title and escrow firm representatives, clerks, secretaries, and other staff. Closing can take anywhere from one hour to several, depending on the purchase offer's contingency clauses or any escrow instructions that need to be carried out.

Most of the paperwork for a closing or settlement is done by lawyers and real estate agents. Depending on who you are working with, you may or may not take part in some of the closing tasks.

Before the closing, you should do a final inspection, or "walk-through," to make sure that any repairs you asked for were done and that any items you agreed to stay with the house, like drapes, light fixtures, etc., are still there.

In most states, the settlement is handled by a title or escrow company. You send them all the paperwork and information they need, along with the appropriate cashier's checks or bank wire, so they can make the necessary payments. Your agent will give the check to the seller and then hand you the keys.

Even if you paid cash for your house and didn't need a mortgage, you still have to pay these state and local fees:

Transfer Taxes – Transfer taxes are paid when the seller hands over the title and deed to the buyer. In some places, this is required by law.

Deed Recording Fees – To pay the County Clerk to record the deed and mortgage and to change the way the property tax is billed.

Pro-Rated Taxes – Since property taxes are due at different times of the year, they may need to be split between the buyer and the seller. For example, if your taxes are due in October and you close in August, you would owe taxes for two months and the seller would owe for the other ten months. Most of the time, taxes are paid based on the number of days, not the number of months. Some lenders may ask you to set up an escrow account to pay these bills. If you don't have one, you might want to start one so that the money is saved for these important costs.

State & Local Fees – There may be other state and local taxes and fees on mortgages.
Even if you paid cash for the property, you may have to pay fees to people like agents, lawyers, inspectors, or insurance companies:

There may be expenses paid to others like agents, attorneys, inspectors, or insurance firms, even if you paid cash for the property:

Attorney Fees – If you want to buy a home, you may want to hire an attorney. Most of the time, they charge 1% of the selling price, but some work by the hour or for a flat fee.

Title Search Costs – Usually, your lawyer will do or set up the title search to make sure there are no problems with the property, like liens or lawsuits. You could also work with a title company to make sure the property title is clear.

Homeowner's Insurance – Most lenders require you to pay the first year's premium for homeowners insurance, also called hazard insurance, in advance and show proof of payment at the closing. This makes sure that the investment is safe even if the property is lost

Real Estate Agent's Sales Commission – The seller pays the real estate agent's commission. If one agent lists the property and another sells it, the commission is usually split. The commission is something that the seller and the agent can talk about.

Origination Fee – A flat fee or a percentage of the mortgage loan may be charged for processing the mortgage application.

Credit Report – Most lenders want to see your credit report, the credit report of your spouse, or the credit report of someone who owns an equal share of the business. This fee is often part of the "origination" fee.

Points – One point is equal to 1% of the amount borrowed, and it can be paid either before or at closing if the loan is approved. In the purchase offer, the buyer and seller can talk about points. Some lenders let you finance points, which add to the cost of the mortgage. If you pay for the points upfront, you can deduct them from your taxes in the year you pay for them. There are different rules for how second home loans can be deducted.

Lender's Attorney's Fees – For your lawyer to put together the paperwork and make sure the title is clear, as well as for you to be there at the closing.

Document Preparation Fees – From the application to the closing, there are a number of documents and papers that need to be made. Lenders may charge for this, or the fees may be included in the application fee and/or the attorney's fees.

Preparation of Amortization Schedule – 

Some lenders will make a detailed amortization for the whole length of your mortgage. Most of the time, this is done for fixed-rate or adjustable-rate mortgages.


Land Survey – Lenders may require a survey of the property to make sure it hasn't been encroached upon and to make sure the buildings and improvements on the property are correct.

Appraisals – Professional appraisers can compare the property's value to that of other nearby homes that have recently sold. Lenders want to know that the property is worth as much as the loan

Lender's Mortgage Insurance – If your down payment is 20% or less, many lenders will require you to buy Private Mortgage Insurance (PMI) for the loan amount. If you don't pay back the loan, the lender will get their money back. These insurance premiums will keep going as long as your principal payments and down payment add up to 20% of the selling price, and they may keep going as long as you have the loan. Most of the time, the premiums are added to the amount you have to put away for taxes and homeowner's insurance.

Lender's Title Insurance – Even if the title is checked for problems, liens, or lawsuits, many mortgage lenders still need insurance to protect their investments. This is a one-time insurance premium that is usually paid at closing and is only for the lender, not the homebuyer.

Release Fees – If the seller worked with a contractor who put a lien on the house and wants to be paid from the money from the sale of the house, there may be fees to get rid of the lien. Most of the time, the seller pays these fees, which could be discussed in the offer to buy

Inspections Required by Lenders – If you want an FHA or VA mortgage loan, the lender may want to do a termite inspection. In many rural areas, a water test may be needed to make sure that the well and water system will keep the house supplied with enough water, not because of its quality. Depending on the sales contract and the type of property, there may be more inspections needed.

Prepaid Interest – The first regular mortgage payment is usually due 6–8 weeks after the closing, but interest costs start at the time of the closing. The lender will figure out how much interest is owed for that amount of time, and sometimes that amount is due at closing

Escrow Account – 

Lenders usually want you to set up an Escrow Account, where you will pay taxes, homeowner's insurance, and sometimes PMI, every month (Private Mortgage Insurance). How much is put into this account at closing depends on when the property taxes are due and when the settlement transaction takes place. During the application process for your mortgage loan, the lender can give you a rough idea of how much it will cost.

Other up-front costs are mostly made up of the deposit or binder you pay when you make an offer to buy a home, the rest of the cash down payment you pay at closing or things like:

Inspections –Lenders may require inspections, and you can make your offer to buy contingent on other inspections, such as structural, water quality, septic, termite, roof, and radon tests, being completed successfully. These inspection fees are something you and the seller can talk about.

Owner's Title Insurance – If something unexpected goes wrong, you might want to buy title insurance so you don't end up owing a mortgage on the property you no longer own. A clear title is made possible by a thorough title search.

Appraisal Fees – You may want to hire an appraiser before you sign a purchase offer or after you read the lender's appraisal report.

Money to the Seller – You'll have to pay for things in the house you want that weren't negotiated in the purchase offer, like appliances, light fixtures, drapes, lawn furniture, or fuel oil and propane left in tanks.

Moving Expenses – If you change jobs, your new employer may pay for your move. If not, you'll have to pay for things like renting a truck, hiring movers, and having cash on hand for utility deposits like phone, cable, electricity, etc.

Repair Expenses – In the purchase offer, you can ask the seller to set up an Escrow Account to cover costs like major cleaning, radon mitigation, painting the house, fixing appliances, etc. Depending on the purchase offer contract and any clauses about what could go wrong, you may find that there are costs when you move in.

Example: Your purchase offer contract has a clause that says the sale will only go through if a structural inspection goes well. The inspection shows that the house needs a new roof. You can talk to the seller about getting the work done, but that will make the closing date later. You might have to agree to pay more for the house or help pay for fixing the roof. Or, you and the seller could split the cost by getting estimates from a contractor you both agree on and putting money into an Escrow Account. Or, the seller might be willing to lower the price of the house, but cash will be needed for the new roof either way

Time Investment – When buying a home, people often forget that there are big costs right away. The time and money you spend looking for a house, which can take up to four months, plus the time you spend looking for the best mortgage for you, the right real estate agent, an attorney, and other related things that take up your valuable time...

(RESPA) tells you what you can expect to pay for a settlement or closing costs. When you apply for a mortgage, your lender must give you a "Loan Estimate" within 3 business days. This is an estimate of settlement or closing costs based on what they know about your purchase contract. This estimate will tell you how much cash you will need at closing to pay prorated taxes, the first month's interest, and other settlement costs.