Understanding Your Closing Costs.
Know where your money goes, what you're paying for, and how to prepare for closing with confidence.
Two Numbers. Very Different Meanings.
When purchasing a home, your down payment isn't the only amount to plan for. You'll also encounter expenses associated with obtaining financing, transferring ownership, and preparing for ongoing property costs.
Closing Costs
Closing costs are the upfront expenses associated with your mortgage and real estate transaction, excluding your down payment. They may include lender charges, third-party services, government fees, prepaid expenses, and initial escrow deposits.
Cash to Close
Cash to close is the amount you are expected to bring to settlement after accounting for your down payment, closing costs, deposits already paid, applicable credits, and other transaction adjustments.
- Down Payment
- Closing Costs
- Applicable Deposits & Credits
- Other Adjustments
- Estimated Cash to Close
Your actual cash to close depends on your loan terms, purchase contract, settlement adjustments, and final Closing Disclosure.
Breaking Down the Costs.
- Origination charges.
- Discount points, if selected.
- Credit report charges.
- Appraisal fees, when applicable.
- Other loan-related services.
Not every loan has the same fees. Some charges depend on the lender, loan program, rate selection, and services required.
- Title search and title insurance.
- Escrow or settlement fees.
- Recording fees.
- Transfer taxes, where applicable.
- Other location-specific charges.
Who pays particular fees can vary by state, local custom, and the purchase agreement.
- Homeowners insurance premiums.
- Prepaid mortgage interest.
- Property taxes, when applicable.
- Mortgage insurance premiums, when applicable.
Prepaids are not necessarily additional lender fees. Many are expenses associated with owning or financing the property that must be paid ahead of time.
- Property tax reserves.
- Homeowners insurance reserves.
- Mortgage insurance reserves, when applicable.
Initial escrow deposits are different from escrow or settlement service fees. They help fund an account used to pay certain recurring expenses.
These four categories simplify the subject for learning purposes. The official Loan Estimate uses more detailed fee classifications.
Your Closing Costs. Explained.
Adjust an illustrative purchase scenario to see how your down payment, estimated costs, deposits, and credits work together.
- Purchase Price
- $500,000
- Down Payment
- $50,000
- Estimated Closing Costs
- $12,000
- Earnest Money Already Paid
- −$5,000
- Seller Credits Applied
- −$5,000
- Lender Credits Applied
- $0
- Other Net Adjustments
- $0
- Earnest money
- Credits applied
- Estimated cash to close
Illustrative example only. Actual closing costs, allowable seller contributions, lender credits, prepaid expenses, escrow deposits, prorations, and cash-to-close amounts depend on your loan program, property, contract, and settlement details. This tool is not a Loan Estimate, financing offer, or guarantee of costs.
Your Loan Estimate. Decoded.
Your Loan Estimate helps you understand the estimated terms, payments, and closing costs of your mortgage before closing.
AOrigination Charges
Charges for making the loan, including applicable origination fees and points.
BServices You Cannot Shop For
Required services for which the lender selects the provider, such as certain appraisal or credit-related services.
CServices You Can Shop For
Required services for which you may be permitted to select a provider, subject to the lender's requirements.
DTotal Loan Costs
The sum of Sections A, B, and C.
ETaxes and Other Government Fees
Applicable recording charges, transfer taxes, and other government fees.
FPrepaids
Certain expenses paid in advance, such as homeowners insurance and prepaid interest.
GInitial Escrow Payment at Closing
Deposits used to establish the escrow account for certain future property-related expenses.
HOther
Additional costs that may apply, such as certain owner-selected services.
ITotal Other Costs
The sum of Sections E, F, G, and H.
JTotal Closing Costs
Total loan costs plus total other costs, accounting for any disclosed lender credits.
The Loan Estimate also contains a separate Calculating Cash to Close table. The sections above are an educational summary, not an actual loan disclosure.
View the CFPB Loan Estimate GuideUnderstanding Closing Cost Credits.
Seller Credits
A seller may agree to contribute toward eligible buyer closing costs as part of the purchase agreement. The amount and permitted uses depend on the financing program, contract terms, and applicable restrictions.
Lender Credits
A lender credit can offset eligible closing costs. It may involve choosing a higher interest rate than an otherwise available option, so it's important to compare upfront savings with long-term borrowing costs.
Discount Points
Discount points are upfront charges that may allow a borrower to obtain a lower mortgage interest rate. Whether paying points makes sense depends on the cost, rate difference, expected time in the home, and other factors.
Credits and points involve trade-offs. The right financing structure depends on your goals and the actual loan options available to you.
Five Smart Moves Before Closing.
Budget Beyond the Down Payment
Plan for closing costs, prepaid expenses, escrow deposits, moving expenses, and an appropriate post-closing cash cushion.
Review Your Loan Estimate
Understand the estimated payment, interest rate, points, lender charges, third-party fees, and cash-to-close amount. Ask questions about anything that isn't clear.
Understand Your Credits
Confirm how any seller or lender credits are expected to be applied and whether financing program restrictions affect their use.
Review Your Closing Disclosure
Compare your final Closing Disclosure with your earlier Loan Estimate. For most covered mortgages, you must receive the Closing Disclosure at least three business days before consummation, subject to applicable rules and exceptions.
Verify Your Funds Transfer Instructions
Before sending closing funds, independently confirm wiring instructions using a trusted, previously verified telephone number for your settlement provider. Be cautious of last-minute changes sent by email.
A Little More Clarity.
Are closing costs the same as my down payment?
No. Your down payment is the portion of the purchase price you pay rather than finance. Closing costs are separate expenses associated with the loan and real estate transaction.
How much should I budget for closing costs?
Closing costs vary by loan type, purchase price, location, lender, and transaction details. Rather than relying on a universal percentage, request a scenario-specific estimate from your loan originator and review the official Loan Estimate when provided.
Can the seller pay my closing costs?
A seller may be able to contribute toward eligible closing costs, subject to the purchase agreement and loan program limits. Seller credits generally cannot simply replace the buyer's required down payment.
Can closing costs be included in my mortgage?
Some financing structures may allow certain costs to be financed, but the options vary by loan type, loan-to-value limits, and program requirements. Ask your loan originator which options apply to your situation.
What is the difference between prepaid expenses and escrow deposits?
Prepaid expenses cover certain obligations in advance, while initial escrow deposits establish reserves that may be used for future payments of taxes, insurance, or other eligible expenses.
Why might my closing costs change?
Costs can change due to property-specific information, selected services, interest-rate choices, taxes, insurance, timing, and other transaction factors. Applicable disclosure rules restrict when certain estimated charges may increase.
When will I know my final cash-to-close amount?
Your Closing Disclosure provides the final loan terms and closing cost information, but certain settlement adjustments may still need confirmation. Coordinate with your loan originator and settlement provider for the final verified amount and payment instructions.
Are discount points worth paying?
It depends on the upfront cost, the interest-rate difference, your expected time with the mortgage, and your financial priorities. Compare the alternatives rather than assuming the lowest advertised rate is always the best choice.
More Clarity. Better Decisions.
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Every home purchase is different. A BridgePoint loan originator can help you understand your estimated closing costs and explore financing options that fit your goals.
This material is provided for general educational purposes only and is not a commitment to lend, a Loan Estimate, or a guarantee of rates, terms, fees, or loan approval. Actual closing costs and available financing options vary by loan program, borrower qualifications, property, location, and transaction details. Consult a licensed mortgage loan originator for information specific to your situation.