Every Closing Cost Explained, Line by Line

Loan Estimate and Closing Disclosure

Within three business days of your application, your lender must give you a Loan Estimate — a standardized three-page form showing your rate, payment and projected costs. At least three business days before closing you receive the Closing Disclosure, which shows the final figures.

Put them side by side. Certain charges cannot increase at all, others only within a 10% tolerance, and some can change freely. If a protected fee jumped, ask why and request a correction. Your lender is obligated to explain it.

Lender charges

Origination fee covers processing and underwriting, typically 0.5% to 1% of the loan. Discount points are optional prepaid interest that permanently lower your rate. Underwriting and processing fees are sometimes bundled into origination and sometimes itemized — compare lenders on the total, not the labels.

Third-party services

The appraisal ($500–$800) is ordered by the lender and cannot be shopped. Title insurance protects against defects in the chain of title; the lender's policy is required, the owner's policy is optional but advisable. Escrow or settlement fees pay the closing agent. In many states you may shop for title and escrow, and the savings can reach four figures.

Government and prepaid items

Recording fees and transfer taxes are set by your state and county and are not negotiable, though who pays them sometimes is. Prepaid interest covers the days between closing and your first payment. Escrow reserves fund two to six months of property taxes and homeowners insurance up front.

These prepaid items are not really fees — you would owe the taxes and insurance regardless. They do, however, increase the cash you need on closing day.

Where to negotiate

Ask the lender to waive or reduce junk fees such as document preparation and application charges. Shop title and escrow where state practice allows. And ask for seller concessions toward closing costs — in a balanced market this is one of the most commonly granted requests, and it is often easier for a seller to give than a price reduction.