Closing costs: the money you need beyond the down payment

Closing is the final step of buying a home, when you sign the paperwork and get the keys. The money you bring that day, called your "cash to close," is your down payment plus your closing costs, minus any credits.

What closing costs include

Closing costs fall into a few main groups.

• Lender fees: These are charges for making your loan. You may also pay "points," which are optional fees you pay upfront to get a lower interest rate.
• Third-party fees: These are payments to others involved in the sale (the appraiser, credit report, survey, and in some states, a closing attorney).
• Title costs: A title search checks that the seller owns the home and that no one else has a claim to it or a lien on it. Lender's title insurance protects the lender if a problem turns up later. Owner's title insurance protects you, and it's usually worth buying.
• Government fees: These are recording fees to put the sale on public record, and in many places, transfer taxes.
• Prepaid costs: This is money set aside upfront for things you'll owe soon, like your first year of insurance, some property taxes, and interest for the rest of the month you close.
• Government loan fees: Some loans charge upfront fees, but they’re usually added to the loan instead of paid in cash.

Two documents to know

• Loan Estimate: Within three business days of applying, your lender has to give you this three-page form. It lists your interest rate, monthly payment, and estimated closing costs. Get estimates from at least two or three lenders and compare them.
• Closing Disclosure: At least three business days before closing, you'll get this final version. Compare it with your estimate. Federal rules limit how much some fees can increase, so if something changed, ask why before you sign.

Ways to lower your closing costs

• Compare lenders: Lender fees vary, and the difference can be hundreds or thousands of dollars.
• Ask the seller to help: In your offer, you can ask the seller to pay part of your closing costs. These are called seller concessions. Each loan type limits how much the seller can pay. FHA allows up to 6% of the price, for example.
• Use lender credits: Some lenders will cover part of your costs in exchange for a slightly higher interest rate. That lowers your upfront cost but bumps up your monthly payment.
• Look for assistance: Many down payment assistance programs also cover closing costs.
• Shop for services: Your estimate will show which services you're allowed to shop for, like title insurance or a settlement agent in some areas.
• Close later: Closing later in the month means less prepaid interest due at closing (you’ll need less cash that day).

Don't forget the home inspection

This isn’t a “closing cost” since you pay it before that point, but it’s something you’ll need to budget for. Don’t skip it, either, because it can show you serious problems before you make them your own.