Mortgage Closing Costs Explained
Understand common mortgage closing costs, what may be prepaid, and why cash to close can be higher than your down payment.
Closing costs are separate from the down payment
A down payment reduces the amount you borrow. Closing costs are the fees, services and prepaid items associated with completing the transaction. That distinction matters when estimating how much cash you may need at closing.
Common lender and third-party charges
Depending on the loan and location, costs can include lender origination charges, appraisal, credit-report fees, title services, recording charges and other settlement services. Some costs are lender-controlled while others are paid to independent providers.
Prepaids and escrow funding
Cash to close can also include prepaid interest, homeowners insurance and initial deposits to an escrow account for taxes or insurance. These are not necessarily lender fees, but they can materially change the amount due at closing.
How to compare loan estimates
Do not compare mortgages on interest rate alone. Review APR, lender charges, points or credits, estimated cash to close and the assumptions behind each quote. A lower advertised rate can come with higher upfront costs.
Using a calculator responsibly
Use a mortgage calculator to compare principal-and-interest payments under different rates, terms and down payments. Then add realistic taxes, insurance, association dues and closing cash separately when evaluating affordability.
Educational information only. This article is not individualized financial, investment, tax or legal advice and is not a lender, issuer or investment offer. Review current disclosures from the relevant provider before making a decision.