Money guide · Mortgages and home-buying costs
Mortgage closing costs: what to budget for
Separate closing costs, prepaid expenses, escrow deposits, and down payments when comparing mortgage offers.
How it works
Loan charges can include origination, appraisal, title services, and recording costs. Prepaid insurance or interest and initial escrow deposits are different kinds of cash requirements, though they can appear in the closing paperwork. Itemized estimates help show which expenses depend on the lender and which depend on the property or timing.
A worked example
Suppose the down payment is $30,000, transaction costs are $6,000, and prepaids plus escrow deposits are $3,000. Before credits, that is $39,000. If you already paid a $4,000 deposit that is credited at closing, the remaining illustrative amount is $35,000. Actual adjustments can add or subtract other amounts; avoid double-counting money already paid.
What to compare
Compare Loan Estimates for the same loan scenario, then check the Closing Disclosure against the agreed terms. Ask which services you can shop for and what an offered lender credit costs through the rate. Keep moving expenses and a home reserve outside the closing calculation, since they are still real costs even if absent from the form.
A common mistake to avoid
A “no closing cost” label can mean costs are financed or offset by a higher rate. It does not necessarily remove their economic cost. Also avoid draining the entire cash balance to close: property ownership often introduces repairs or utility expenses soon after the transaction.
Are closing costs the same as the down payment?
No. They are separate expenses. Cash to close combines several items and reflects deposits and credits, so inspect the itemized forms.
Sources and further reading
Connect this to inflation
Inflation changes the spending power of money over time. Read the related inflation explainer, or compare dollars across years using your own assumptions.