Closing Costs Guide for First-Time Buyers: Every Fee Explained and How to Reduce Them

You've saved your down payment, your offer was accepted, and you're ready to close — then your loan estimate arrives and you see it: $8,000–$15,000 in closing costs you didn't fully account for. Welcome to the experience that catches nearly every first-time buyer off guard.

Closing costs are the collection of fees paid at the time of closing — on top of your down payment — to finalize the mortgage and transfer the property. On a $400,000 home purchase, expect to pay 2%–5% of the loan amount in closing costs, or roughly $8,000–$20,000.

This guide explains every major closing cost category, identifies which fees are negotiable, and gives you a proven playbook for reducing your total closing bill.

The Two Categories of Closing Costs

Before diving into specific fees, understand that closing costs fall into two buckets:

1. Loan-Related Costs: Fees charged by your lender or related to obtaining the mortgage. These are often negotiable or can be shopped.

2. Third-Party Costs: Fees charged by independent parties (title company, attorneys, appraisers, inspectors) that are required for the transaction. These vary by service provider and can often be shopped separately.

Your Loan Estimate (provided within 3 business days of application) and your Closing Disclosure (provided 3 days before closing) are legally standardized documents that break down every cost by category. Compare them carefully.

Loan Origination Fee

What it is: The lender's fee for processing, underwriting, and funding your loan. Typically expressed as a percentage of the loan amount.
Typical range: 0.5%–1.5% of the loan amount ($2,000–$6,000 on a $400,000 loan)
Negotiable: Yes. This is the lender's profit center. Compare origination fees across multiple lenders — even a 0.25% difference saves $1,000 on a $400,000 loan.

Some lenders advertise "no origination fee" mortgages but offset this with a higher interest rate or other fees. Always compare the Annual Percentage Rate (APR), which incorporates fees into an annualized cost comparison.

Mortgage [Discount Points](/blog/mortgage-points-explained)

What it is: Optional upfront fee paid to permanently reduce your interest rate. Each point costs 1% of the loan amount and typically lowers the rate by about 0.25%.
Typical range: Varies — 0 to 2+ points depending on your rate buydown goals
Negotiable: Yes — the number of points is entirely your choice. Don't let a lender pre-populate your loan estimate with points you didn't request.

See our detailed mortgage discount points calculator guide to determine if buying points makes financial sense for your situation.

Appraisal Fee

What it is: The cost of a licensed appraiser's assessment of the home's value. Required by your lender to confirm the home is worth the purchase price.
Typical range: $400–$750 for a standard single-family home
Negotiable: Somewhat. You can't negotiate with the appraiser (lenders select from approved lists), but you can choose a lender who absorbs this cost or shop lenders whose approved appraisers charge less.

Some lenders are now using automated valuation models (AVMs) or "desktop appraisals" for lower-risk loans, which cost less. Ask your lender if you qualify.

Title Search and Title Insurance

What it is: The title search examines public records to confirm the seller has clear ownership and no undisclosed liens. Title insurance protects against any title defects discovered after closing.

Two types:

• Lender's title insurance: Required by virtually all mortgage lenders. Protects the lender.
• Owner's title insurance: Optional but strongly recommended. Protects you.

Typical range: $1,000–$3,500 total depending on your state and home price
Negotiable: Yes — you can choose your own title company in most states. Shop 2–3 quotes. Rates vary significantly.

Learn more about what title insurance covers and when you need both policies.

Escrow / Settlement Fee

What it is: The title company or escrow company charges a "settlement fee" or "closing fee" for managing the closing transaction — collecting documents, holding funds, disbursing proceeds, and recording the deed.
Typical range: $400–$1,500
Negotiable: Yes. Like title insurance, you can often shop for a closing/settlement agent. Some states mandate that buyers and sellers each choose their own attorney.

Attorney Fees

What it is: In some states (particularly in the Northeast and Southeast), a [real estate attorney](/blog/how-to-build-real-estate-team) is required to conduct the closing or review the transaction. Your attorney represents your interests.
Typical range: $500–$1,500
Negotiable: Somewhat. Attorney rates are competitive — get multiple quotes in states where you must hire one.

Required attorney-at-closing states include: New York, Massachusetts, Connecticut, Rhode Island, Vermont, Georgia, South Carolina, and others.

Home Inspection Fees

What it is: A licensed home inspector evaluates the property's physical condition, systems, and structure. Unlike the appraisal (for the lender), the inspection is for you.
Typical range: $300–$600 for a standard inspection; $500–$1,200+ with specialized inspections (radon, sewer scope, mold, pest)
Negotiable: You choose the inspector. Get referrals and compare quotes.

Pro tip: Never skip the home inspection to save a few hundred dollars. A $400 inspection that reveals a $25,000 foundation problem is the best money you'll ever spend. See our [[home inspection guide](/blog/home-inspection-guide)](/blog/home-inspection-guide) for what to expect.

Flood Determination and Monitoring Fee

What it is: Your lender orders a determination of whether your property is in a FEMA-designated flood zone. If so, [flood insurance](/blog/hurricane-insurance-guide) may be required.
Typical range: $15–$25
Negotiable: No — minimal cost, non-negotiable.

Credit Report Fee

What it is: Lender's cost to pull your credit reports from all three bureaus.
Typical range: $25–$75
Negotiable: Not worth negotiating — minimal cost.

Survey Fee

What it is: A licensed surveyor verifies the property boundaries and confirms there are no encroachments. Required by some lenders or states; optional in others.
Typical range: $300–$800
Negotiable: You can choose your surveyor in most cases. Get quotes.

Prepaid Costs: The Category Buyers Forget

Prepaid costs aren't fees — they're advance payments for ongoing costs the lender requires you to fund at closing. They include:

Prepaid [Homeowners Insurance](/blog/homeowners-insurance-complete-guide) Premium

Your lender requires you to have the first year of homeowners insurance paid at or before closing.
Typical range: $1,200–$3,000+ depending on home value and location

Prepaid Mortgage Interest

You pay interest from your closing date to the end of the month, because your first mortgage payment isn't until the month after next (30-day lag). Closing early in the month means more prepaid days; closing late in the month means fewer.
Typical range: $500–$2,000+ depending on loan size and timing
Strategy: Close near the end of the month to minimize prepaid interest.

Escrow Account Funding (Reserves)

Your lender typically requires 2–3 months of property taxes and homeowners insurance to be deposited into your escrow account at closing, creating a cushion for future payments.
Typical range: 2–6 months of property tax and insurance
Formula: (Monthly tax + Monthly insurance) × 2–3 months

This can easily run $2,000–$5,000 in high-tax areas.

Government Recording Fees

What it is: Fees paid to your county government to record the deed and mortgage in public records.
Typical range: $50–$500 depending on the county and state
Negotiable: No — set by government entities.

Transfer Taxes

What it is: State or local taxes on the property transfer. Paid by the buyer, seller, or split (varies by state and local custom).
Typical range: Varies dramatically by state:

• States with no transfer tax: Texas, Indiana, Missouri, Wyoming
• States with significant transfer tax: New York, Washington D.C., Delaware, Connecticut

This can be one of the most expensive closing costs in high-tax states — up to 3% of the purchase price.

HOA Fees and Prorations

If buying in an HOA community, you may owe:

• Prorated HOA dues for the current month
• Transfer fees charged by the HOA
• HOA disclosure document fees ($50–$500)

Strategies to Reduce Your Closing Costs

1. Shop Lenders — Not Just for Rate, But for Fees

Closing costs vary dramatically between lenders. A lender with a 0.25% lower rate might charge $3,000 more in origination fees. Always compare both.

Request Loan Estimates from at least 3 lenders with identical loan parameters and compare line by line.

2. Negotiate [Seller Concessions](/blog/seller-concessions-guide)

In buyer-friendly markets, you can negotiate for the seller to pay some of your closing costs — called "seller concessions." On a $400,000 home, asking for 2% seller concessions means $8,000 toward your closing costs.

Conventional loans allow up to 3% seller concessions for down payments under 10%. FHA allows up to 6%.

3. Apply for [First-Time Buyer Assistance](/blog/down-payment-assistance-programs) Programs

Many states, counties, and municipalities offer closing cost assistance grants or low-interest loans to first-time buyers. These can be $1,000–$10,000+ in free closing cost help. See our guide to first-time homebuyer grants in 2026.

4. Choose Lender Credits (No-Closing-Cost Option)

If cash flow is tight, some lenders offer lender credits — they cover some closing costs in exchange for a slightly higher rate. This makes sense if:

• You'll sell or refinance within a few years
• You can't comfortably afford both down payment and closing costs

Learn the full tradeoff in our no-closing-cost refinance guide.

5. Close at Month-End to Minimize Prepaid Interest

By closing on the last 2–3 business days of the month, you minimize the prepaid interest charge. This won't move the needle on big fees, but it can save $500–$1,500.

6. Shop for Title Insurance and Settlement Services

You're legally entitled to choose your own title company and settlement agent in most states. Get 2–3 quotes — title insurance rates vary by hundreds of dollars for identical coverage.

7. Ask Your Employer or Union for Benefits

Some employers and professional organizations offer closing cost assistance, particularly in relocation packages. Check your employee benefits before assuming you're on your own.

What to Review on Your Closing Disclosure

Three days before closing, you'll receive a Closing Disclosure (CD). Compare it line by line against your original Loan Estimate. Specific items can increase; others can't increase at all without re-disclosure. Look for:

• Any fee increases beyond allowable tolerances
• New fees that weren't on your Loan Estimate
• Differences in the loan terms (rate, amount, cash to close)

Don't be afraid to raise questions — you have every right to understand exactly what you're paying.

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Related Articles

• Mortgage Discount Points Calculator Guide
• [[First-Time Homebuyer Grants 2026](/blog/first-time-homebuyer-grants-2026)](/blog/first-time-homebuyer-grants-2026)
• Earnest Money Guide for Home Buyers
• Seller Concessions Guide
• Home Inspection Guide
• Title Insurance Buyers Guide