Table of Contents
Last Updated: 11/4/2025
What Are Closing Costs?
Closing costs are a key part of buying a home, covering the fees and services that make your purchase official. From lender and title charges to insurance and taxes, these costs ensure every detail of your loan and property transfer is handled correctly. While they can feel overwhelming at first, understanding what’s included helps you plan with confidence and avoid surprises on closing day. With clear guidance and transparent communication, RWM Home Loans makes navigating closing costs simple and stress-free.
Your lender will provide an estimate of these fees early in the process so you know what to expect. As you move closer to closing, the amounts will be reviewed and finalized, and you’ll receive a detailed settlement statement outlining every cost associated with your home purchase. Having a clear understanding of these numbers helps you stay informed, prepared, and confident as you complete your homebuying journey.
How Do Closing Costs Work?
As you learn about the home buying process, you may hear from other parties that you should have enough saved for closing costs. Without any starting knowledge of what closing costs are, you might initially think it sounds like a few hundred dollars, right?
Unfortunately, that’s not the case. As a rough guide, buyers should budget 2%–5% of the purchase price (or of the loan amount). On an $800,000 home purchase, that’s often $16,000–$40,000 before any seller or lender credits. Closing costs can fluctuate depending on certain aspects such as the purchase price, location of the property, loan amount, and whether you decide to impound your taxes and insurance.
Each cost is connected to an important part of your homebuying process, so it’s a good idea to review these estimated fees upfront with your loan officer. Doing so helps you stay informed, plan confidently, and avoid surprises as you move toward closing.
What’s Included in Closing Costs?
Appraisal Fee
When you buy a home, you will most often be required to get an appraisal to determine the home’s market value. If you do not pay for it at the time of service, it will be included in your mortgage fees. The size of the property, location, and the type of property are a few of the many things that can affect how much your appraisal fee will cost.
Closing Fee
Your closing fee is paid to the independent third party managing the final steps of your home purchase. This could be a title or settlement company, or in some states, a real estate attorney. You can think of this party as the neutral accountant who makes sure all the paperwork and funds are handled properly.
Credit Report
To decide your loan qualification and rate, your lender will pull a tri-merge credit report (a credit report that pulls information from the three major credit repositories: Equifax, Trans Union, and Experian). Be cautious of your credit raising any red flags and be prepared with ways to repair it. The credit report fee will be included with your total loan closing costs.
FHA/HUD Up-Front Mortgage Insurance Premium (UPIMP)
With an FHA loan, borrowers pay an up-front mortgage insurance premium (UFMIP) that helps protect the lender. Currently, this fee is 1.75% of the base loan amount. Most buyers choose to include this cost in their loan, so it’s added to the total loan balance instead of being paid out of pocket at closing.
Home Inspection
You can choose to order a home inspection to learn about the current condition of the home. The inspector will evaluate the roof, electrical system, plumbing, fireplaces, and other important safety features. This fee is usually paid directly to the inspector by the buyer or homeowner, outside of the home purchase transaction process.
Lender’s Policy Title Insurance
This is included in the title company’s fees and is an insurance policy for the lender. This policy ensures that the lender has priority to be paid first over any other claims that others may have in your property.
Loan Discount/Origination Points
Loan discount points are fees charged to achieve a certain interest rate and are a percentage of your loan amount. For example, a lender may charge 1 point for a lower rate. This would cost 1% of your loan amount and is charged on top of the traditional loan closing costs.
Origination Fee
Your lender may charge an origination fee for processing your loan. Origination fees can include processing, underwriting, and funding fees.
Prepaid Interest
When you make your mortgage payment, you are paying interest from the previous month so when you close your loan, you will pay interest starting on the day your loan closes through the end of the month. Your first mortgage payment will not start until the following month. For example, if you close your loan on August 15th, you will pay interest at closing until August 31st and your first mortgage payment will be October 1st.
Property Taxes Currently Due
If your first property tax payment is due within the same month as your first mortgage payment, your lender will require you to make the payment at closing. The seller may share in this expense depending on your closing date.
Recording Fees
Fee charged by the county/city for registering (or recording) the home purchase/sale as a matter of public record.
Sales/Broker Commission
Real estate commissions are now fully negotiable between buyers, sellers, and their agents. Total commissions average around 5%–6% of the home’s sale price, often split between the listing and buyer’s agents.
Sellers are no longer required to offer compensation to buyer’s agents through the MLS. Instead, buyers and their agents must agree on compensation in writing before touring homes. In some cases, buyers may pay their agent directly or request that the seller provide a credit at closing to cover part or all of the fee.
Because commission arrangements can vary, it’s important for both parties to discuss and confirm how each agent will be paid early in the process to avoid surprises at closing.
Survey Fees
Depending on which state you live in, you may be required to have a property survey performed to verify the property lines and fences.
Title Company Title Search/Service/Exam Fee
Paid to the title company, this fee covers the cost of the title’s search of your property records and deed to ensure there are no other claims on the house.
Transfer (Excise) Taxes
This tax is for when the title of the home transfers from the seller to the buyer and is determined by the City and County. Transfer taxes also vary state-by-state.
Underwriting Fee
Paid to the lender, this covers the cost of determining whether or not your loan will be approved. Not all lenders charge this fee.
VA Funding Fee
Most VA loans involve a VA funding fee that goes directly to the Department of Veterans Affairs to keep the VA program running. This fee is a percentage of your loan amount and will vary depending on the type of transaction, down payment, and whether you have used the VA program before. The fee is financed into your loan amount. Some veterans are eligible to have their funding fee waived including those that have a service-connected disability. Ask your loan officer for more information about these fees.
Can I Lower My Closing Costs?
There are a few scenarios where your closing costs can be reduced, although not all scenarios can be guaranteed. You can consult with your loan originator on each scenario before proceeding.
Understanding Your Loan Estimate: When reviewing your initial quote, focus on how each cost fits into your overall closing expenses. Some fees, like title and settlement services, are typically set by the seller’s chosen providers and will remain consistent throughout the process. The main differences usually come from your lender’s programs and services.
Get Help from the Seller: Although this can be difficult in a competitive market, it is not uncommon for the seller to offer the buyer credit towards their closing costs. If the seller is motivated to sell their home quickly, this may be an option to attract buyers or help a potential buyer who is short on closing funds. The purchase price of the home may be increased to offset the credit given to the buyer. It is good to discuss this option with your agent as they will be negotiating items like this on your behalf when your offer is submitted.
Rate Options: Make sure to review your quote from the lender to see if they are charging any discount points. Discount points are typically charged to achieve a lower rate. Ask about your options with increasing the rate to reduce the discount points. There is also the opportunity with a higher rate to receive a lender credit that will go towards reducing your overall fees. There may not be a large payment difference with taking the higher rate so it may be better depending on your financial situation to go with the higher rate if that means coming in with less cash at closing.
At RWM Home Loans, we make the process clear and seamless, offering competitive rates, responsive communication, and reliable closings so you can move forward with confidence and make your homeownership goals a reality.
Review Your Disclosure Thoroughly
Transparency is an important part of the homebuying experience. Throughout the process, you’ll receive clear disclosures that outline your loan details and costs , starting with a Loan Estimate and ending with a Closing Disclosure before you sign your final documents. These forms are designed to give you confidence and clarity at every step, ensuring there are no surprises when it’s time to close on your new home.
In the meantime, check out our move-in checklist to ensure you’re prepared for your big day! Remove the hassle and stress of moving with a few tips and tricks on how to get started and what to keep in mind. As you close in on the final steps of your mortgage, this simple walkthrough will make the moving process a breeze!
