Closing Costs on Loan: What are they and How to Reduce them

Closing costs are fees that you pay to finalize a loan. They can include a variety of expenses, such as lender fees, third-party fees, prepaid expenses, and escrow funds. Closing costs are typically paid at the time of closing, and they can range from 2% to 6% of the loan amount.

Different types of closing costs

Here is a breakdown of the different types of closing costs:

  • Lender fees: These fees are charged by the lender to process and underwrite the loan. Common lender fees include origination fees, appraisal fees, and credit report fees.
  • Third-party fees: These fees are charged by third-party providers, such as title companies, home inspectors, and insurance companies. Common third-party fees include title insurance fees, appraisal fees, and homeowners insurance premiums.
  • Prepaid expenses: These are expenses that you pay upfront, such as property taxes and homeowner association fees.
  • Escrow funds: These are funds that are held in escrow by the lender to pay for certain expenses, such as property taxes and homeowners insurance.

How much are closing costs?

The amount of closing costs that you pay will vary depending on a number of factors, including the loan amount, loan type, property location, and other factors. However, closing costs typically range from 2% to 6% of the loan amount.

Here are some factors that can affect closing costs:

  • Loan amount: The higher the loan amount, the higher the closing costs will be.
  • Loan type: Some types of loans, such as jumbo mortgages and FHA loans, have higher closing costs than others.
  • Property location: Closing costs can vary depending on the state and county where the property is located.
  • Other factors: Other factors that can affect closing costs include the type of property, the age of the property, and the complexity of the transaction.

How to reduce closing costs

There are a number of ways to reduce closing costs, such as:

  • Shop around for lenders: Different lenders charge different closing costs, so it’s important to shop around and compare rates and fees before choosing a lender.
  • Negotiate with your lender: Some lenders are willing to negotiate closing costs, so don’t be afraid to ask.
  • Ask about discounts: Many lenders offer discounts for certain borrowers, such as military members and first-time homebuyers.
  • Consider rolling closing costs into your loan: If you can’t afford to pay closing costs out of pocket, you may be able to roll them into your loan. However, this will increase the amount of interest that you pay over the life of the loan.

Tips for paying closing costs

Here are some tips for paying closing costs:

  • Budget for closing costs: When you’re budgeting for a home purchase, be sure to include closing costs in your budget.
  • Get pre-approved for a mortgage: Getting pre-approved for a mortgage will give you an idea of how much you can qualify for and how much your closing costs will be.
  • Consider using a gift fund: If you have a friend or family member who is willing to give you a gift to help cover closing costs, you can use this money to pay for closing costs.
  • Ask the seller to contribute to closing costs: In some cases, the seller may be willing to contribute to closing costs as part of the sales negotiation.


What is the difference between closing costs and a down payment?

Closing costs are fees that you pay to finalize a loan, while a down payment is the amount of money that you put down on the purchase price of the home. Closing costs are typically paid at closing, while the down payment is typically paid at the time of contract signing.

How can I estimate my closing costs?

You can estimate your closing costs by getting a pre-closing disclosure from your lender. This document will list all of the closing costs that you are expected to pay.

Can I negotiate my closing costs?

Yes, you may be able to negotiate your closing costs with your lender. However, it’s important to note that not all lenders are willing to negotiate.


Closing costs can be a significant expense when buying a home. However, there are a number of ways to reduce closing costs and make homeownership more affordable. By following the tips above, you can save money on closing costs and get into your dream home sooner.

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Alamu Tosin

The writer is Alamu Tosin. I have three strong passions in life — football, blogging and movies — in that order. I love spending time with friends talking about the important things in life and hate nothing more than ‘authority’ and hypocrisy. My personal believe in life is that once an individual sets his/her mind to achieve something, it is totally possible. And oh!, I am a strong Lannister, because I always pay my debt. For writing or fixing gigs, contact [email protected].
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