What Are Closing Costs and How Much Should You Budget?

Buying a home is one of the most exciting milestones in life, but it also comes with a series of expenses beyond the purchase price. One of the most important—and sometimes overlooked—expenses is closing costs. Understanding what they are and how much to budget can help you plan ahead and avoid last-minute surprises.

What Are Closing Costs?

Closing costs are the fees and expenses you pay when finalizing the purchase of your home. These are separate from your down payment and typically cover services provided by lenders, title companies, and government agencies. Common items include:

• Loan origination fees

• Appraisal and inspection fees

• Title search and title insurance

• Recording fees and transfer taxes

• Prepaid property taxes and homeowner’s insurance

How Much Should You Budget?

Closing costs usually range between 2% and 5% of the home’s purchase price. For example, if you’re buying a $300,000 home, you should expect to pay between $6,000 and $15,000 in closing costs. The exact amount depends on your loan type, location, and negotiated terms.

Tips to Manage Closing Costs

• Request a Loan Estimate: Lenders must provide a breakdown of estimated closing costs early in the process.

• Shop Around: Some services, like title insurance or home inspections, can vary in price.

• Negotiate: In some cases, sellers may agree to cover part of the closing costs to finalize the deal.

Final Thoughts

By budgeting wisely for closing costs, you can enter your home purchase with confidence and clarity. Always review your closing disclosure carefully to ensure you understand every fee before signing.