Closing Costs Explained: What You Pay and What You Can Negotiate

Closing costs are the fees paid to finalize a mortgage transaction. They typically range from 2 to 5 percent of the loan amount, which on a $300,000 loan means $6,000 to $15,000 in additional cash needed at closing. Many first-time buyers are surprised by the amount. Coventry Enterprises of America breaks down what these fees are and which ones you can actually negotiate.

Lender Fees (Negotiable)

Origination fees are what the lender charges to process the loan. They are typically expressed as a percentage of the loan amount (0 to 1 percent) or as a flat dollar amount. These are negotiable. Some lenders charge no origination fee but compensate by offering a slightly higher rate. Others offer "no-closing-cost" loans where the fees are folded into the rate or loan balance.

Discount points are also lender fees, but they are optional. You pay them to reduce the interest rate. Points are usually negotiable in the sense that you can choose how many to buy (including zero).

Third-Party Fees (Partially Negotiable)

Title insurance protects the lender (and optionally the buyer) against title defects. The lender's title policy is required; the owner's title policy is optional but strongly recommended. On lender-required services, you have the right to shop for your own providers rather than using the lender's affiliated companies. The Loan Estimate includes a list of services you can shop for. Use that right, as shopping can save hundreds of dollars on title and settlement fees.

Appraisal fees are paid to the appraiser, who is selected by the lender from an approved panel. You cannot choose the appraiser, but this fee is generally market-rate and not inflated.

Prepaid Items and Escrow

Prepaid items are not really fees in the traditional sense; they are costs you would incur regardless of the lender. These include the first year of homeowner's insurance, prepaid mortgage interest for the partial month of closing, and the initial escrow deposit for property taxes and insurance. Because these costs are real and necessary, they are less about negotiation and more about accurate budgeting.

Seller Concessions

In some markets and transactions, sellers agree to pay a portion of the buyer's closing costs as a concession. This is most common when sellers are motivated and the market favors buyers, or when the buyer's offer is strong enough that sellers are willing to accommodate. Seller concessions are typically capped by the loan type (6 percent for FHA, 3 to 9 percent for conventional depending on down payment).