When you’re figuring out how much cash you’ll need to buy a home, the down payment is only one piece of the calculation. Closing costs, prepaid expenses, adjustments, and other transaction costs can change the amount you’ll need before the keys are yours. The good news is that you won’t have to guess all the way to closing. There are several points along the way when the numbers become clearer, so let’s look at what may be included and where you’ll find the information.
A useful starting estimate is that buyer closing costs often fall around 2% to 5% of the purchase price, although every transaction is different. Your loan type, property, location, and the services required can all change the total. These costs are generally separate from your down payment, so it helps to plan for both from the beginning.
MORTGAGE-RELATED COSTS
- Loan origination or underwriting fees, when applicable
- Application or credit-related charges, when applicable
- Appraisal fee
- Discount points if you choose to pay them for a particular interest rate
- Upfront mortgage insurance or guarantee fees when required by the loan
- Prepaid interest
PROPERTY & PREPAID COSTS
- Property-tax adjustments or initial escrow deposits
- Homeowners insurance premiums or escrow deposits
- HOA or condominium-related charges when applicable
- Survey costs when required or useful
- Other property-specific expenses or assessments
TITLE, RECORDING & SETTLEMENT COSTS
- Title search and title insurance, depending on the transaction and local practice
- Recording fees
- Transfer taxes where applicable
- Settlement, escrow, closing-agent, or attorney fees where applicable
DON’T FORGET THE COSTS OUTSIDE CLOSING
Some expenses arrive before you ever reach the closing table. Home inspections, specialized evaluations, moving expenses, deposits, and other costs may need to be paid separately. Keeping those items in their own part of the budget can help you avoid using all of your available cash just to complete the purchase.
BUYER-BROKER COMPENSATION
Your written buyer agreement should tell you how your agent’s brokerage will be compensated and what responsibility you may have for that compensation. Those terms are negotiable. Depending on the agreement and transaction, some or all of the compensation may come from you or may be negotiated from another source as part of the purchase. We’ll make sure you understand that obligation early so it doesn’t become an unexpected number later.
Before you’ve chosen a home, an online calculator such as the one at NerdWallet can give you a rough planning estimate. Once you apply for financing, however, your lender will give you something much more useful: a Loan Estimate showing projected loan terms and closing costs. For most mortgages subject to federal disclosure requirements, it generally must be provided within three business days after your lender receives the application.
Near the end of the process, you’ll receive a Closing Disclosure, generally at least three business days before closing. That gives you time to compare it with your Loan Estimate, review any differences, and ask questions before funds are due.
Look particularly at the “Cash to Close” section. It brings together your down payment, closing expenses, deposits already made, credits, and other adjustments so you can see how the final amount is being calculated.
IMPORTANT: Never trust wiring instructions simply because they arrived in an email or text that looks legitimate. Before sending money, independently verify the instructions with the appropriate closing professional using a trusted phone number. If anything changes unexpectedly, stop and confirm the information before taking action.
Your lender and closing professional will tell you how and when the final funds must be delivered. Follow their verified instructions rather than assuming every closing uses the same process.
One last suggestion: don’t let “Cash to Close” become “every dollar I have.” Leave yourself some room for moving, utility setup, supplies, and the inevitable small expenses that show up during the first days in a new home. This guide to moving supplies may help you plan for a few of them.
There can be a lot of numbers between an accepted offer and closing day. You don’t have to memorize them all. I’ll help you understand which ones matter, where to find them, and who to ask when something doesn’t make sense.