Closing costs

Buyers often need cash for a down payment and, separately, cash for closing costs. Closing costs include lender charges, third-party services such as appraisal and title work, and prepaid items such as the first year of homeowners insurance or an escrow cushion for taxes.

A rough range people use for planning is about 2 to 5 percent of the loan amount. That is a planning band, not a quote. A refinance has closing costs too, even though there may be no down payment.

Lender charges can include an origination fee, points, and specific processing fees. Some of those are negotiable. Appraisal, credit report, title insurance, and recording charges come from other companies, and the lender has less room to change them.

Prepaid interest covers the days between closing and the start of the first full payment month. Escrow deposits are money set aside so the servicer can pay upcoming tax and insurance bills. They are your money, held for those bills, not a fee the lender keeps as profit.

You can pay closing costs in cash, ask the seller for a credit where the contract allows it, or accept a higher rate in exchange for a lender credit. A lender credit reduces cash due at closing and raises the interest you pay afterward.

The Loan Estimate lists expected closing costs early. The Closing Disclosure, delivered before you sign, shows the final figures. Compare those two documents line by line.