Definition
The fees due at a real estate closing beyond the down payment: lender origination, appraisal, title insurance, prepaid taxes and insurance, and recording fees. Budget roughly 2 to 5 percent of the loan amount.
Why it matters
Closing costs are the classic first-home surprise: buyers save for the down payment and forget the second bill that arrives with it. On a $400,000 purchase that can be another $8,000 to $20,000 in cash at the table.
Example
A buyer putting $40,000 down on a $400,000 home gets a loan estimate showing $11,500 of closing costs. They negotiate a lender credit in exchange for a slightly higher rate, cutting cash-to-close, a fair trade only because they plan to refinance within a few years.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.