Closing costs are the pile of fees due on the day a home sale or refinance is finalized, separate from the down payment. For buyers they usually run 2% to 5% of the loan amount. On a $400,000 loan, that is $8,000 to $20,000, paid at the closing table.
The list is long. Lender charges: origination fee, underwriting, discount points if you buy down the rate. Third-party charges: appraisal, credit report, title search, title insurance, survey, recording fees, attorney fees in some states. Prepaid items: the first year of homeowners insurance, a few months of property tax to seed the escrow account, and interest from the closing date to the end of the month. Sellers pay a different set, dominated by agent commissions of around 5% to 6% of the sale price.
Lenders must provide a Loan Estimate within three days of an application and a Closing Disclosure three days before closing. Comparing Loan Estimates from two or three lenders is the easiest way to save on the lender portion, which can vary by thousands.
Some costs can be negotiated onto the seller, especially in a slow market. Some lenders offer a no-closing-cost loan, which means the costs are rolled into a higher rate rather than eliminated.
The common mistake is saving exactly the down payment and being short at closing. Budget the down payment, closing costs, moving expenses, and a cushion for the first repairs as one number, since all of them arrive within weeks of each other.