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Buying a home is exciting, but it can also bring up a lot of questions, especially when you start hearing terms like closing costs. If you’re not exactly sure what closing costs are or when they’re paid, you’re not alone. Many homebuyers feel the same way at first.

Let’s walk through closing costs in a simple, straightforward way.

What Are Closing Costs?

Closing costs are the fees and payments required to finalize your home purchase and mortgage. These costs cover the work that happens behind the scenes to process, approve, and complete your loan.

You’ll see your estimated closing costs early in the process on your Loan Estimate, and you’ll see the final numbers on your Closing Disclosure just before closing day. Closing costs are paid at closing, when you sign your final paperwork and officially become a homeowner.

How Much Are Closing Costs?

In most cases, closing costs total about 2% to 5% of your loan amount, according to The Mortgage Reports. The exact amount can vary based on factors like your loan type, where the home is located, and the timing of your closing.

While that range can sound intimidating at first, your Mortgage Advisor will review your estimated costs with you early on, so you know what to expect and have time to prepare.

Why do Closing Costs Vary?

Closing costs vary because: 

• Transfer taxes differ by state
• Some states require attorney closings
• Home prices directly affect dollar totals
• Local rules determine who pays which fees

This is why two buyers purchasing similarly priced homes in different states can see thousands of dollars’ difference in closing costs.

South Dakota, Alaska, and North Carolina have some of the lowest closing costs, while New York, Vermont, and Pennsylvania are some of the highest, according to Lodestar.

How to Plan for Closing Costs

Planning ahead for closing costs can make the homebuying process feel much more manageable. One helpful first step is reviewing your Loan Estimate early on, which gives you an initial look at your estimated closing costs and time to ask questions or plan your budget. 

It's a good idea to think about these funds separately from your down payment and set aside money for this expense.

A home that sells for $300,000 will likely come with $6,000-$15,000 in closing costs.

How Closing Costs Are Organized

To make closing costs easier to understand, they’re typically grouped into two main categories: loan costs and other costs. Seeing them organized this way helps break a big number into smaller, more manageable pieces.

Loan Costs

Loan costs are the fees related directly to your mortgage and loan services. These may include lender or origination-related fees, appraisal costs, and certain services required to process your loan.

Some loan-related services may allow for shopping or comparison, and your Mortgage Advisor can help explain which items you may have flexibility with. Their role is to make sure you understand what each cost is for, and which ones are required versus optional.

Other Costs

Other costs aren’t lender fees, but they’re still an important part of closing. These often include taxes, government recording fees, prepaid items like homeowners insurance or interest, and initial escrow funding.

A helpful way to think about prepaids is that they’re not extra fees, they’re expenses you would owe anyway, just paid upfront at closing rather than later.

The average U.S. homebuyer pays roughly $4,600-$7,000 in closing costs, according to a report by Lodestar

Why Do Closing Costs Surprise Buyers?

Closing costs often catch people off guard because they’re separate from the down payment, and some of the amounts depend on timing or location. Prepaid items can also feel confusing at first, since they don’t always feel like traditional “fees.” The good news is that none of this has to be a mystery.

Can the Seller Cover Some of the Closing Costs?

Yes. In some home purchases, the seller agrees to pay part of the buyer’s closing costs as part of the offer negotiation. This is called a seller concession or seller credit.

Important to know: the seller doesn’t hand the buyer cash. Instead, the credit shows up on the Closing Disclosure and reduces the amount the buyer needs to bring to closing. The seller’s contribution comes out of their sale proceeds.

Cases when the seller may cover some of the closing costs:

• In a buyer's market: When there are more homes for sale than buyers, sellers may offer concessions to make their home more attractive and help close the deal. This is one of the most common times seller credits are used.
• After a home inspection: If an inspection uncovers repairs, sellers sometimes offer to help with closing costs instead of completing the repairs themselves. This keeps the deal moving and gives the buyer flexibility.
• When a buyer needs help with upfront costs: Buyers who qualify for a mortgage but want to reduce the amount of cash needed at closing may negotiate seller credits to help cover closing costs or prepaid expenses.
• To keep a deal from falling apart: If a deal is close but one party is hesitant, seller concessions are often used as a negotiation tool to bridge the gap and move forward to closing. 

We’re Here to Walk You Through It

At United, we believe homebuying should feel clear, supportive, and empowering. Our Mortgage Advisors take the time to explain each cost in plain language, answer your questions along the way, and make sure you feel confident before closing day arrives. You’ll never be left guessing: we’re here to walk you through the process, every step of the way.

Thinking About Buying a Home?

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