You can spend months saving for a down payment and then meet your closing costs as a single line on a form a few weeks before you get the keys. Lenders and settlement agents spread closing costs across dozens of line items with names you never hear in daily life, and the full total rarely sits in one place until late in the process.
This guide walks through what closing costs a first-time buyer actually pays, which ones can change before closing, which ones you can shop for or negotiate, and how to read the total well before closing day.
What closing costs are, in plain English
Closing costs are the fees and prepaid amounts due when your home purchase and mortgage are finalized. They are separate from your down payment. Some go to the lender for making the loan. Some go to third parties such as the appraiser, the title company, and the county recorder. The rest is your own money, paid up front into an escrow account to cover property taxes and insurance that come due after you move in.
In a 2024 review of mortgage fees, the Consumer Financial Protection Bureau (CFPB) reported that median total loan costs on home purchase loans rose 21.8 percent from 2021 to 2022, to nearly $6,000. That figure covers lender and loan-related charges such as origination fees, appraisal and credit report fees, title insurance, and discount points. It does not include prepaid taxes, insurance, or escrow deposits, so the cash you bring to closing will be higher.
The same review noted that many closing costs are fixed. An appraisal or a title search costs about the same on a large loan as on a small one, so these costs take a bigger bite out of smaller mortgages. The CFPB noted that this falls hardest on lower-income and first-time buyers, and cited a 2021 study finding that nearly 15 percent of lower-income buyers had closing costs larger than their down payment.
The four groups of closing costs a first-time buyer pays
Sort closing costs into four groups, since each group follows its own rules.
1. Lender charges
The lender charges these to make the loan. Common items include an origination or underwriting fee, application or processing fees, and discount points if you choose to pay them. Discount points are optional: you pay money at closing in exchange for a lower interest rate over the life of the loan.
The CFPB found that about half of home purchase borrowers paid some discount points in 2022, up from about a third in 2021, and that the median amount paid in points nearly doubled over that year. Points can make sense if you keep the loan long enough to earn the money back, and less sense if you expect to sell or refinance in a few years. Ask to see the same loan with and without points, then run break-even math on your own numbers: divide the cost of the points by the monthly savings they buy, and you get the number of months before they pay for themselves.
2. Third-party services
These are services the lender requires but someone else performs. Typical items include:
- the appraisal, which confirms the home is worth what you are paying
- the credit report
- title search and lender's title insurance, which protect the lender if a problem with ownership surfaces later
- settlement or closing agent fees
- a survey, pest inspection, or flood certification, depending on the property and the area
Some of these you can shop for. Your Loan Estimate tells you which ones.
3. Government fees and taxes
Counties charge to record the deed and the mortgage. Many states and localities also charge transfer taxes when property changes hands. State and local law sets these amounts, and they range from a small line item in some areas to one of the largest costs at the table in others. Local custom often decides whether buyer or seller pays them, and you can negotiate.
4. Prepaids and escrow deposits
This group surprises first-time buyers most, because it sits on the same page as the fees. At closing you typically prepay:
- your first year of homeowners insurance
- interest on the loan from the closing date to the end of that month
- an initial deposit into your escrow account, so there is a cushion to pay property taxes and insurance as they come due
You would pay property taxes and insurance anyway; closing front-loads part of that bill. The timing also explains why a closing late in the month means less prepaid interest than one early in the month. The total cost of the loan stays the same while the cash due at closing shifts.
Which closing costs can change, and which cannot
Within three business days of applying, the lender must give you a Loan Estimate. That form is your baseline. Federal rules limit how much certain costs can rise between the Loan Estimate and closing, and the CFPB lays out the three tolerance categories in plain terms.
Costs that cannot increase at all, unless there is a valid change in circumstances:
- fees paid to the lender, the mortgage broker, or an affiliate for a required service
- fees for a required service you were not allowed to shop for, when the provider is not affiliated with the lender
- transfer taxes
Costs that can increase, but only by up to 10 percent in total:
- recording fees
- fees for required third-party services when you chose a provider from the lender's written list
Costs that can increase by any amount:
- prepaid interest, homeowners insurance premiums, and initial escrow deposits
- fees for required services when you shopped for a provider who is not on the lender's list
- fees for services the lender does not require
The CFPB also notes it is illegal for lenders to deliberately underestimate costs on the Loan Estimate. If you switch loan types, change your down payment, take on new debt, or the appraisal comes in differently than expected, the lender can issue a revised estimate.
Then, at least three business days before closing, you receive the Closing Disclosure. It shows the final loan terms and every cost. Put it side by side with your Loan Estimate and compare line by line. If a cost in the "cannot increase" group went up without an explanation, ask about it before you sign.
Where first-time buyers can lower closing costs
You have more room here than the forms suggest.
Shop the services you are allowed to shop
The Loan Estimate marks which third-party services you can choose yourself. Title and settlement services are often on that list. A few phone calls can make a difference, and the tolerance rules above tell you the trade-off: picking from the lender's list keeps those costs inside the 10 percent cap, while picking your own provider gives you more choice and less protection.
Ask the seller to contribute
Seller credits toward your closing costs are common and negotiable. Each loan type caps them. Current conventional guidelines tie the cap to your down payment, so a smaller down payment generally means a lower cap. For VA loans, the VA limits seller concessions to 4 percent of the home's reasonable value, and VA notes that normal closing costs the seller agrees to pay are treated separately from that limit.
Pick your closing date with prepaid interest in mind
A closing near the end of the month lowers the prepaid interest due at closing. The loan costs the same over its life, but you need less cash that day.
Know which coverage is optional
Lender's title insurance is generally required. An owner's title policy, which protects you rather than the lender, is usually optional. Many buyers choose it, since it protects your ownership for as long as you hold the home. Make that choice on purpose, with the price in front of you.
A note for veteran buyers
If you served, the VA home loan benefit you earned changes the closing cost picture in a few useful ways. The VA lets buyers and sellers negotiate who pays closing costs such as origination fees, discount points, the VA appraisal fee, title insurance, and recording fees. The VA funding fee can be financed into the loan amount on a purchase, but other closing costs must be paid at closing or covered by seller credits. Some veterans are exempt from the funding fee altogether, including many who receive VA disability compensation. Check your Certificate of Eligibility, and ask your loan officer to confirm your status before you look at final numbers.
What about taxes?
Most closing costs are not deductible in the year you buy. Under IRS Publication 530, the main exception is points, which may be deductible if certain conditions are met. You generally add many other settlement costs, such as title fees and recording fees, to your home's cost basis instead. A higher basis can lower your taxable gain when you sell. Keep your Closing Disclosure with your tax records.
How to read your total closing costs and cash to close
When the Closing Disclosure arrives, look for two numbers.
The first is total closing costs. It adds loan costs and other costs, including prepaids and escrow.
The second is cash to close. This is the amount you bring to the table. It starts with your closing costs, adds your down payment, then subtracts your earnest money deposit, any seller credits, and any lender credits.
Take an illustration with made-up round numbers, not a quote. Say total closing costs come to $11,000, of which $4,000 is prepaid insurance, interest, and escrow. Your down payment is $15,000, you already put down $3,000 in earnest money, and the seller agreed to a $4,000 credit. Your cash to close is $11,000 plus $15,000, minus $3,000, minus $4,000, which is $19,000. The $4,000 in prepaids is part of that figure, but it is money you would have spent on taxes and insurance anyway.
Run the math this way and you see the full picture: the total you need on closing day, and the total cost of the home over the years you own it. A single fee or the interest rate alone tells you far less.
One last safety step. Before you wire any money for closing, call your settlement agent at a phone number you already have, not one from an email, and confirm the wiring instructions by voice. Closing-day wire fraud often starts with a convincing email saying the instructions have changed, and a two-minute call is the best defense.
Getting a clear number early
Smart, careful buyers miss pieces of this every day. The system spreads the information across forms and line items you were never meant to read in one sitting. Ask for the full picture early: a Loan Estimate you understand, a plain explanation of which costs can move, and an honest estimate of your cash to close before you make an offer.
That is the conversation a GoodLoan loan officer is there to have. We are licensed through the NMLS, we walk through every line of the estimate with you, and if a loan does not fit your full financial picture, we will tell you so. If you are getting ready to buy your first home, reach out to a GoodLoan loan officer to talk through what your closing costs are likely to be.
Frequently asked questions
How much are closing costs for a first-time buyer?
The CFPB reported median total loan costs on home purchase loans of nearly $6,000 in 2022, before prepaid taxes, insurance, and escrow deposits. Your Loan Estimate gives you the figure for your own loan, price, and location.
Can closing costs be rolled into the mortgage?
On most purchase loans, closing costs are paid at closing rather than added to the loan balance. Seller credits and lender credits can reduce what you pay out of pocket. On VA purchase loans, the VA funding fee can be financed into the loan, but other closing costs cannot.
Who pays closing costs, the buyer or the seller?
Both, and much of it is negotiable. Buyers typically pay loan-related costs, local custom often decides transfer taxes, and you can ask the seller to contribute up to the limit your loan type allows.
Can my closing costs go up after I get the Loan Estimate?
Some can. Lender fees and transfer taxes generally cannot rise without a valid change in circumstances. Recording fees and some third-party fees can rise up to 10 percent in total. Prepaids, escrow deposits, and services you shopped for on your own can change by any amount.
When will I know my final closing costs?
You receive the Closing Disclosure at least three business days before closing, with your final terms, total closing costs, and cash to close. Compare it line by line with your Loan Estimate.
Are closing costs tax deductible?
Most are not. Points may be deductible if you meet IRS conditions, and you add many other settlement costs to your home's cost basis. A tax professional can apply this to your situation.
