14 Things Your Mortgage Lender Isn't Telling You About Closing Costs

When you buy a house that's $200,000, you might assume that the only cash you need to bring to the table is the down payment. If that's 20%, then you plan on handing over $40,000 that day.

But the actual amount is higher thanks to closing costs.

These often unexpected costs are part of every home-buying transaction, and navigating these extra expenses can be a complex and confusing process if you've never done it before. 

There are fees and percentages to account for, which may not have been part of your initial calculation.

You can prepare yourself financially for them, however, and there are also ways to avoid these expenses. Here's what you need to know.

Closing costs are not included in the purchase price of your home, and they add up quickly. While 2–5% may not sound like a lot, it can feel significant when you've already been saving up carefully for your down payment.

Title insurance isn't required by law, but many mortgage lenders will need it to avoid troubles down the line. This will only run you a few hundred dollars, but you don't want it to surprise you.

You probably feel like you're paying enough with your down payment, but there are also transfer fees involved in transferring a piece of real estate from one person to another. This fee varies by location, but expect to pay a percentage of the final purchase price.

Did you know the buyer pays to have the home inspected to ensure it matches the condition promised in the listing? That will add another several hundred dollars to the fees you pay before closing.

The lender and broker are, of course, going to want to be paid for their work. This could add up to 3% of the purchase price — on top of what you're already paying.

It may seem like just another way to add insult to injury, but it's also possible that you'll pay another fee just to apply for a mortgage. Typically, this will run a few hundred dollars.

You're already paying a loan application fee, and then you'll pay a loan origination fee. What's the difference? The loan origination fee is the cost to make the loan — significantly more expensive than the application fee. It's usually 1–2% of the purchase price.

Depending on your location or the complexity of the transaction, you may have to hire a lawyer to review all your contracts. This means paying an hourly legal fee, which can reach into the hundreds.

First-time homeowner? Welcome to paying property taxes. You'll be greeted into that world with two months of property taxes due at closing. 

Your mortgage broker will probably require you to get homeowners insurance, which you must have in place by closing. This will likely cost a few hundred dollars per month.

There are a few ways to help reduce closing costs, including negotiating to have the seller pay some or all of the costs. Often, this is done through seller credits or asking the seller to pay the broker fee.

If you close at the end of the month, you'll reduce the number of days you're accruing interest, which means less money due at closing. Unfortunately, it also means fewer days until your first mortgage payment.

Most real estate experts will advise you to shop around before committing to a lender. That's because each lender will charge different fees or come to the table with a different negotiating ability. Pick the one that's most advantageous for you.

If you don't want to come to the table with the cash for closing costs, consider wrapping them into the loan. However, be aware that you'll pay interest on those closing costs, just as you will pay interest on your monthly payment towards the principal.

A major ruling in the real estate world in 2024 changed how commission structures are negotiated.

It's not entirely clear how this will impact buyers and sellers, but buyers may have more flexibility in the amount they decide to pay their agent — but this will also have to be decided upfront. 

That means fewer surprises along the way and potentially lower closing costs, which is important for homeowners looking to build wealth.