What are mortgage closing costs?

Closing costs may come as an unpleasant surprise to you after making all down payments in the process of house hunting and applying for a mortgage. For this reason, it is essential to understand what closing costs comprise so that you can budget for them upfront.

By planning for closing costs, you will make the final touches of your mortgage payment smoother. Read on to discover more about closing costs.

What are closing costs?

Closing costs are fees paid at the closing of a real estate transaction. They get the name closing costs because they are paid when the title to the property is conveyed or transferred to the buyer. Closing costs can be incurred by either the buyer or the seller of a property. In most cases, closing costs are paid by the buyer, though the seller has to pay a small part of the cost, including the agent’s commission.

The costs include myriad fees for the expenses and services necessary for finalizing a mortgage. Whether you are buying a home or refinancing it, paying closing costs is mandatory. The costs range from 2% to 5% of the entire mortgage and do not include the initial down payment.

It is cost-effective to cover or pay for your closing costs out-of-pocket as a one-time expense. You may also finance them by folding them into the loan only if the lender allows and preparing to pay interest on those costs through the time when the mortgage exists.


In most cases, the lender outlines your closing costs in the loan estimate given to you when you first apply for the loan, and in the closing disclosure document, you get a few days before settling the mortgage. It is advisable to review them keenly and seek clarification in case you don’t understand.