How much should I budget for closing costs in the US?
Budget 2–5% of the loan amount for closing costs. On a $400,000 home with a $320,000 mortgage, expect $6,400–$16,000. The main items are: loan origination fee (0.5–1%), title insurance (0.5–1% of price), appraisal ($400–$600), pre-paid property taxes (2–3 months), pre-paid homeowner's insurance, and recording fees. State transfer taxes add significant cost in NY, FL, PA, and WA.
What are pre-paid items at closing?
Pre-paid items (also called "pre-paids") are not fees — they are advance deposits for expenses you will owe in the future: homeowner's insurance premium (often 12 months upfront), property taxes (2–3 months into escrow), and prepaid mortgage interest (from closing date to month-end). These are collected by the lender to fund your initial escrow account and ensure insurance and taxes are paid on time.
Can I negotiate closing costs?
Yes. Lender fees (origination, underwriting, processing) are negotiable — shop at least 3 lenders. Title insurance and settlement service fees can be shopped in most states. The seller can pay some closing costs as a seller concession — common in buyer's markets. Points (discount points) can be paid upfront to lower your interest rate, or you can take a higher rate in exchange for lender credits to offset closing costs.