What are closing costs, and who pays them?

Closing costs are the transaction fees required to complete a purchase and are paid on top of the down payment, which is the point that catches first-time buyers who budgeted only for the deposit. For buyers they commonly run two to five percent of the loan amount and include lender charges such as origination and underwriting fees, third-party costs including appraisal, credit report, title search, and title insurance, prepaid items such as the first year of homeowners insurance and property tax escrow deposits, and recording and transfer taxes that vary enormously by jurisdiction. Sellers pay their own set, historically including the real estate commissions, which are the largest single line and which became more openly negotiable following changes to industry practice in 2024.

Two disclosures exist specifically to let you control these. Within three business days of applying you must receive a Loan Estimate in a standardized format, which makes offers from different lenders directly comparable line by line. At least three business days before closing you receive a Closing Disclosure, and comparing it against the Loan Estimate is the step that catches fees that appeared or grew along the way. Certain charges cannot increase at all between the two documents, and others are limited to a ten percent aggregate increase, so a discrepancy is worth questioning rather than accepting.

What is actually negotiable is more than people assume. Lender fees, particularly origination and various administrative charges, are competitive and respond to a buyer holding a better estimate from another lender. You can shop separately for services on the written list of providers the lender must give you, notably title insurance, where prices vary meaningfully in states that permit competition. Seller concessions, where the seller credits a portion of closing costs, are a standard negotiating term, especially in slower markets, subject to caps set by the loan type. And lender credits let you accept a slightly higher interest rate in exchange for reduced upfront costs, which is a reasonable trade for buyers who expect to move or refinance within a few years.