What closing costs are, and why the total surprises people
When you buy a home you pay more than the down payment. Closing costs are everything else needed to complete the purchase: the lender's fees, the appraisal and title work, government charges, and the first slices of interest, insurance and property tax paid in advance. The Consumer Financial Protection Bureau says they typically come to 2% to 5% of the purchase price, not counting the down payment. On a $400,000 home that is a range of $8,000 to $20,000, which is a large sum to find if you have only budgeted for the down payment.
This calculator lays the costs out the way the lender's Loan Estimate does, so you can plan before you have one and compare it with the real one when it arrives.
How a closing cost estimate is put together
Page 2 of the Loan Estimate groups the costs into lettered sections. The calculator uses the same groups.
| Section | What it covers | How this calculator works it out |
|---|---|---|
| A. Origination charges | The lender's fees for making the loan, and any discount points | Percent of the loan. One point is 1% of the loan. |
| B. Services you cannot shop for | Required services the lender chooses, such as the appraisal and credit report, and an upfront mortgage insurance or funding fee on some government-backed loans | Dollar amounts you enter |
| C. Services you can shop for | Title insurance, settlement services, surveys and inspections | Dollar amounts you enter |
| D. Total loan costs | A + B + C | Added up |
| E. Taxes and government fees | Recording fees, transfer taxes | Recording as a dollar amount, transfer tax as a percent of the price |
| F. Prepaids | Homeowner's insurance, property taxes and loan interest paid in advance | Monthly amount × months. Interest = loan × rate ÷ 365 × days. |
| G. Initial escrow payment | A starting cushion in the account that later pays taxes and insurance | Monthly amount × months held |
| H. Other | HOA fees, the owner's title policy and similar | A dollar amount you enter |
| I. Total other costs | E + F + G + H | Added up |
| J. Total closing costs | D + I | Added up |
cash to close = down payment + total closing costs − seller credit − deposit already paid
Cash to close is the number to save for. The Loan Estimate defines it as the amount of money you will have to bring to the table.
Worked example 1, by hand: a $400,000 home
$80,000 down, so the loan is $320,000 at 6.5%. The dollar amounts for the appraisal, title and other services are placeholders for illustration.
- A. Origination and underwriting at 1% of $320,000 = $3,200.00.
- B. Appraisal $600 + credit report and other required services $100 = $700.00.
- C. Title services $2,000 + inspection $500 = $2,500.00.
- D. Total loan costs: $3,200.00 + $700.00 + $2,500.00 = $6,400.00.
- E. Recording $150 and no transfer tax = $150.00.
- F. Prepaids: 12 months of insurance ($1,800 ÷ 12 × 12) = $1,800.00; 2 months of property tax ($400,000 × 1.1% ÷ 12 × 2) = $733.33; 15 days of interest ($320,000 × 6.5% ÷ 365 × 15) = $854.79. Total $3,388.13.
- G. Escrow deposit: 2 months of tax $733.33 + 2 months of insurance $300.00 = $1,033.33.
- I. Total other costs: $150.00 + $3,388.13 + $1,033.33 = $4,571.46.
- J. Total closing costs: $6,400.00 + $4,571.46 = $10,971.46, which is 2.74% of the price, inside the typical 2% to 5% range.
- Cash to close: $80,000 + $10,971.46 = $90,971.46.
Notice that $4,421 of the $10,971 is prepaids and escrow: interest, insurance and taxes you would have owed anyway. Only $6,550 is fees for services. When comparing lenders, compare the fees. Prepaids and escrow will be similar whichever lender you choose.
Worked example 2: is paying a point worth it?
A lender offers 6.50% with no points, or 6.25% if you pay one point (1% of the loan). These two rates are illustrations, not quotes. Get real pairs from your lender.
| No points, 6.50% | One point, 6.25% | |
|---|---|---|
| Monthly principal and interest | $2,022.62 | $1,970.30 |
| Cost of the point | $0 | $3,200 |
| Monthly saving | - | $52.32 |
| Months to pay the point back | - | 61 |
Divide the cost of the point by the monthly saving: $3,200 ÷ $52.32 ≈ 61 months, or about 5.1 years. If you expect to keep the loan longer than that, the point pays for itself. If you might sell or refinance sooner, it does not. The refinance break-even calculator makes the same kind of check for a refinance.
Worked example 3: seller credits and earnest money
| No credits | With credits | |
|---|---|---|
| Total closing costs | $10,971 | $10,971 |
| Seller credit | $0 | −$4,000 |
| Earnest money already paid | $0 | −$5,000 |
| Cash to bring to closing | $90,971 | $81,971 |
The earnest money is not a saving. You paid it earlier, so it simply reduces what is left to pay at the table. A seller credit really does reduce your cash to close, but it is negotiated as part of the price, so it may cost you somewhere else. Loan types can also limit how much a seller may contribute, so ask your lender.
Worked example 4: how the down payment changes closing costs
| Down payment | Loan | Closing costs | % of price | Cash to close |
|---|---|---|---|---|
| $20,000 | $380,000 | $11,732 | 2.93% | $31,732 |
| $80,000 | $320,000 | $10,971 | 2.74% | $90,971 |
| $160,000 | $240,000 | $9,958 | 2.49% | $169,958 |
A bigger down payment shrinks the loan, which lowers the percentage-based lender fees and the prepaid interest a little, but the fixed dollar costs and the taxes and insurance barely change. Closing costs are mostly tied to the price and the services, not the down payment, which is why they stay large even when you put down a lot.
Ways to lower your closing costs
- Ask several lenders for a Loan Estimate and compare them line by line. Section A is where lenders differ most.
- Shop for the services in section C, such as title insurance, instead of accepting the first quote.
- Ask whether the seller will contribute, and understand what you give up in return.
- Ask how many days of prepaid interest are included, since it depends on your closing date.
- Review your Closing Disclosure carefully. Lenders are required to give it to you three business days before closing, which leaves time to ask about changes.
Common mistakes to avoid
- Budgeting only for the down payment. Plan for the 2% to 5% on top, plus moving and furnishing.
- Treating prepaids as fees. They are real cash at closing but not a cost of the lender's service.
- Comparing lenders by rate alone. A lower rate can come with points and higher fees.
- Forgetting reserves. Lenders and sensible buyers want cash left over after closing.
- Using placeholders as facts. Replace the example amounts with the numbers on your Loan Estimate.
Next, see your monthly payment with the mortgage calculator, check what you can afford with the house affordability calculator, and follow the first-time homebuyer checklist.
Sources and review
The 2% to 5% range and the description of cash to close are from the Consumer Financial Protection Bureau's guidance on how much to spend. The section layout follows the CFPB's Loan Estimate explainer, and the three-business-day rule comes from its Closing Disclosure explainer. The two-month escrow default reflects the CFPB's explanation that a lender may collect enough to cover the account plus a cushion of up to two months of estimated payments (the limit on escrow deposits); see also escrow accounts. The arithmetic is tested in our test suite. Last reviewed September 2026. For taxes that differ by state, see our closing costs by state guides. To read the estimate lender by lender, see how to read a Loan Estimate and compare offers with the loan offer comparison calculator. Read about our methodology.