When buyers first hear “closing costs,” the number can sound intimidating. On average, you should expect about 6% of the purchase price to go toward closing costs. The good news? In many cases, we can negotiate with the seller to contribute a portion of these costs—reducing what you need to bring to the table. But remember, in addition to closing costs, you must also be prepared for your down payment. For first-time homebuyers using FHA financing, that’s typically 3.5% of the purchase price. For other loan types, the percentage can vary.
So, what makes up closing costs? Let’s break it down:
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Lender fees: underwriting, processing, and loan origination charges.
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Third-party fees: appraisal, credit report, title search, title insurance, settlement fees.
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Government fees: recording fees, transfer taxes, state mortgage stamps.
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Prepaids and escrow: homeowners insurance, property taxes, and mortgage insurance reserves.
For example, in a recent FHA purchase of about $500,000, the estimated buyer cash-to-close was just over $33,000. This included the 3.5% down payment, lender and third-party fees, government charges, and prepaid insurance/taxes. Each deal is different, but the breakdown is very similar across transactions.
This is why I walk every buyer through their Loan Estimate line by line. When you work with me, there are no surprises—I’ll show you what each fee means, when it’s due, and how we can structure your offer to reduce out-of-pocket expenses. Buying a home is not just about affording the monthly payment—it’s about being fully prepared for the day you close, with confidence and peace of mind.