A Guide to Closing Costs: What Every First-Time Homebuyer Needs to Know

Closing Costs Explained: Buy Smarter as A First-Time Homebuyer

By Julie Marion, The First Time Homebuyer Workshop

Buying your first home? Beyond all the home viewings, the offers, and running around a financial bill is lurking in the wings. Closing costs can add thousands of dollars to the basic carrying costs referenced by most “transactional” people during the whirlwind of the homebuying journey.  Unless you are aware, closing costs can be a shock, making the fun and excitement of buying your first home hit the skids and leave a hole in your stomach. 

Don’t worry, this guide will walk you through everything you need to know so you become a savvy first time home buyer before you start shopping for the house that will become your home.

In this guide, we’ll break down:

• What "Closing Costs" are

• Typical amounts for first-time buyers

• How to reduce or negotiate them

• Smart planning tips to avoid last-minute stress

What Are Closing Costs?

Definition: Closing Costs are the fees and expenses paid at the end of a real estate transaction. They cover everything from lender services to legal processing. For first-time homebuyers, these costs can range from 2% to 5% of the home’s purchase price.

• Loan origination fees (charged by your lender)

• Appraisal fees (to determine the property’s value)

• Title search and title insurance

• Recording fees (local government charges to record the sale)

• Prepaid expenses like homeowner’s insurance and property taxes

  💡  Tip: Think of closing costs as the “administrative cost” to transfer ownership from seller to buyer.

Why it matters: If you buy a $300,000 home, closing costs could run between $6,000 and $15,000 — a big difference if you’re budgeting carefully.

Many of the professionals in the home buying process are not paid until the transaction is completed and the deed for the new property owner is recorded at the county recorder’s office.  Many of the fees can be waived or lowered if you, technically, qualify as a first-time homebuyer.  

Planning for Closing Costs

• Get an estimate early: Your lender must provide a Loan Estimate within 3 days of your application.

• Save a little extra: Always budget more than the estimate to avoid surprises.

• Review your Closing Disclosure carefully: This final breakdown comes at least 3 business days before closing.

Typically, you’ll receive a detailed breakdown of these costs at least three days before your closing date, which is way too late in my opinion.  Additionally, when you initially talk with a lender about a mortgage, they will give you a Truth and Lending Disclosure and this disclosure will outline the basic fees of the loan (Here is the link to Regulation Z) which is way too early, in my opinion, because you do not have a specific property identified nor a specific loan type. Details of the mortgage and the property can change while you are in the process of buying a home and those details can impact fees. Nonetheless, these are the two disclosures used in the home buying process. 

Let’s dive deep into each of these fees so you can customize your own working closing disclosure cheat sheet and you won’t be surprised.

Mortgage Related Fees

Loan Origination Fee: The loan origination fee is charged by the lender for processing your loan application. It’s typically a percentage of the loan amount however some lenders are moving to a flat fee. Some lenders allow you to pay a higher origination fee in exchange for a lower interest rate. Be sure to ask your lender about different fee and rate combinations to find the best fit for your situation. Should you use a mortgage broker, their fee may be wrapped into this fee.

• What it is: A fee charged by your lender to process your mortgage application.

• Typical range: 0.5%–1% of the loan amount (2025)

• Tip to save: Negotiate or shop around for lenders with lower fees.

Appraisal Fee: The lender may require an appraisal to ensure the property’s value aligns with the loan amount. An appraiser will complete an evaluation, and their report will be submitted to the lender and to you, as the buyer, for review.  Appraisers are third party consultants that work for the bank, yet you, as the first-time homebuyer, are responsible for the bill which ranges from a few hundred to a thousand dollars. Some loan programs offer appraisal waivers or credits, so inquire about potential savings when comparing lenders.

• What it is: The cost of a professional home appraisal to determine market value.

• Typical range: $300–$700 (2025)

• Tip to save: Compare appraisal costs across lenders before committing.

Credit Report Fee: Lenders will pull your credit report to assess your creditworthiness.  Before you apply for a loan and incur costs doing a personal self-study is prudent.

• What it is: A fee charged by your lender to process your credit report inquiry.

• Typical range: Around $25.00 - $100.00 (2025)

• Tip to save: Ask the lender if the fee can be waived as a first-time homebuyer. 

Title Search and Title Insurance: These fees are related to the transfer of the property unencumbered.  The title search verifies the people selling the property are legally allowed to do so. Yes, people do try to sell property they don’t own (usually in estate sales when someone has passed). The search verifies there are no ownership disputes or outstanding liens on the property.   Purchasing a title insurance policy protects both you and the lender against any mistakes with the title and you will avoid the hourly rate an attorney will charge to clean up the situation. With respect to title insurance, you will have two policies, one for the lender (this fee is non-negotiable) and an owner’s policy (optional but recommended) which covers you in the event of a dispute. 

• What it is: Insures the property’s title is clear (no third-party liens) and protects against future disputes.

• Typical range: $500–$1,500 combined (2025).

• Tip to save: Ask your agent if the seller is willing to cover this fee.

Recording Fees: Local governments charge these fees to record the deed (property ownership), the mortgage (lien on the property), and other official documents (such as a homestead). When you narrow down an area where you would like to live, research the recording fees at the governing county so you can see what will be required when purchasing a property.

• What it is: These are fees charged by the local county to record the ownership documents (the deed) and the liens (the mortgage), on the property you are purchasing.  

• Typical range: County dependent

•  Tip to save: Ask the county government if there are any discounts and determine if you would qualify.

Underwriting Fee: The underwriting fee covers the lender’s evaluation of your loan application and related financial documents. The bank will analyze your financial profile and determine whether or not you fit into a category to give you a mortgage to buy the house. Underwriters never speak to the consumer yet; they request verification of financial statements through paperwork.  Making sure your financial profile is in top shape before applying for a loan will aid in making the process smoother. Some lenders may offer discounts if you have a strong credit history or are a preferred customer.

• What it is: This is a fee that pays for the financial analysis of your finances, your ability to repay the loan and determine what the bank's risks are if any

• Typical range: Lender dependent 

• Tip to save: You can ask the bank to waive this fee as a first-time homebuyer

Escrow Fees: If your lender requires an escrow account for property taxes and property insurance, you will have this fee delineated on the "Closing Disclosure" and it is technically part of the "Closing Costs".  Should you purchase a condominium, typically 3 months of condo fees are required as part of the closing process.  (Example: condo fee $500 per month = $1500 due at closing).  You may also have options to pay these fees upfront or roll them into your monthly mortgage payments.

• What it is: This is an account, usually required by the lender to ensure you have the proper funds set aside to pay local property taxes when the property tax bill come due.

• Typical range: Dependent on the rate of the property tax, condo fee etc. 

• Tip to save: You can ask the bank if this is required or if you are able to pay these fess directly to the local jurisdiction or condo association.

Discount Points (A buy down): Paying points upfront can lower your interest rate. Each point typically costs 1% of the loan amount. Should you choose this option when formulating your loan, this fee will appear as part of the closing costs.

• What it is: These are fees that you pay upfront to lower your mortgage interest rate

• Typical range:  Lenders typically allow 1-4 points to be bought down

• Tip to save: Each point typically costs 1% of the loan. You must hold on to the property, and not refinance, in order for the math to benefit you.  

Prepaid Interest: You may need to pay interest for the period between your closing date and the end of the month. Unlike rent, which is paid upfront, mortgages are paid in arrears. This means your first full mortgage payment will be due the month after closing. Should you purchase a home on January 15 your next full mortgage payment is due March 1, as an example.

• What it is: The interest paid between the closing date and the end of the month.

• Typical range: Depends on your mortgage terms and when you choose to close on the property.

• Tip to save: Closing at the end of the month typically does not trigger "pre-paid" interest therefore if this is a cost you would like to avoid propose to close at the end of the month. 

  • TIP: Moving companies get booked  well in advance at the end of the month, so plan ahead. Often transitions between an apartment to a home and delivering the apartment back to the  landlord can take more work and time than initially planned.

Mortgage Survey Fee: The bank employs a third-party consultant to verify the boundaries of the property and ensure there are no structures that encroach on the lot lines. The mortgage survey fee covers this verification.

• What it is: The Mortgage Survey Fee is a fee paid by the first-time homebuyer to a third party hired by the lender to insure there are no structures encroaching on adjacent properties.  

• Typical range: Lender dependent.

• Tip to save: You can ask the lender if the fee can be waived. 

Property Insurance Fees

Homeowner’s Insurance: Insurance costs are paid as part of the "Closing Costs". Should you purchase a single-family home or even a duplex with no condo fee, you’ll need to pay for your first year of homeowner’s insurance upfront. Costs vary based on the property’s location and coverage levels. The home insurance is delineated on the Closing Disclosure; however, for a single-family home, you pay the insurance carrier directly before closing. 

• What it is: Home Insurance is insurance required when home buyers carry a mortgage. It insures against the loss or damage to a home. Most mortgage loans require 80% of the home's value be insured.  The other 20% is the land and usually the land is remains in a disaster so it is not part of the home insurance.    

• Typical range: Varies based on local rates. Home insurance, like auto insurance needs to be compared like for like. It is not uncommon to have an annual bill of $2500 so, check rates at various carriers. 

• Tip to save: Combining Auto, Home and Umbrella policies will save you money as well as having higher deductibles. 

Should you purchase a condo, home insurance is part of your condo fee.  Please note: the condo policy only covers the exterior and common-owned land, therefore, should you want the contents of your home insured you will need to purchase a separate policy.  A “contents” policy is like renters’ insurance and does not need to be purchased by closing.   Many lenders require three months of condo fees to be escrowed as part of the purchase (See Escrow Fees).

Flood Insurance: Should the property be in an area where you need flood insurance as part of the purchase, you will need to purchase a flood insurance policy as part of the closing costs.  Flood insurance costs have been rising and recognizing this cost before you start your home search is well worth your time.  You do not want to be looking at properties where a flood insurance expense will keep you from your homeownership dream.

• What it is: Flood Insurance is specific insurance over and above home owners insurance that covers flooding from outside the home as opposed to a water heater leaking, as an example.  

• Typical range: Varies based on local rates. FEMA is the best place to research what insurance carriers provide insurance. In some state the risk is too great and therefore your "state" provides insurance policies.

• Tip to save: Review the flood maps and make sure the elevation and flood zone is correct for your property

Property Taxes: Property owners are responsible for property taxes up until the day the property transfers to the new owner.  Local governments bill property owners for single family homes in different revenue collection cycles, therefore, if the property owner paid their bill to the local jurisdiction, you may be required to reimburse the seller for pre-paid property tax.  The adjustment to the property tax is delineated on the Closing Disclosure and is a part of the closing costs.  Condominiums collect the property tax as part of the condo fee, and a similar adjustment is made on the Closing Disclosure.

• What it is: Advance payment for upcoming taxes from the day you buy to the next bill cycle.

• Typical range: Varies based on local rates.

• Tip to save: Some jurisdictions give discount to veterans.  Check with your local government.

Professional Service Fees

Attorney Fees: In some states, it’s common to have an attorney handle closings and charge fees for their services. Verify whether this applies in your area.

• What it is: These are services when you speak with the attorney who is representing you. Some firms have a flat fee and others have an hourly fee.

• Typical range: Varies based on local rates.

• Tip to save: If you engage the attorney that is representing the bank there will be one charge as opposed to hiring a separate attorney to represent you and another attorney representing the bank (you pay for as well).

Real Estate Agent Fees: Recent legal rulings may require first time homebuyers to pay their buyer agent’s commission. While this cost was traditionally covered by the seller, first-time homebuyers should be prepared for this possible expense. A recent Missouri lawsuit has effectively changed the way the real estate agents are paid. However, many sellers still see the value in covering these costs to attract buyers.  As of this writing, the real estate industry is still evaluating a path forward and if the property you are interested in purchasing does not offer compensation for the buyer agent, you may be asked to cover that fee. Before you start your home shopping, look at your finances and see if you will be able to or willing to cover that expense. As a side note, traditionally lenders would not roll a real estate agent’s fee into the mortgage so, be aware of that banking stipulation.

• What it is: The fee is for services of the professional real estate agent representing you.  

• Typical range: All real estate agent fees are negotiable.

• Tip to save: You can ask the seller to pay the fee, ask for the fee to be waived (although highly unlikely because most professionals when working don't work for free) or do the work yourself however (I dont recommend that either because, they are licensed, it's their profession and they know the laws and procedures of the state in which your are purchasing a home). 

Five Ways To Save on Closing Costs

1. Compare Lenders: Request loan estimates from multiple lenders to identify the best terms and lowest fees.
2. Negotiate Fees: Many closing costs, such as origination and underwriting fees, are negotiable. Don’t hesitate to ask for discounts or waivers.
3. Explore First-Time Homebuyer Programs: Some government-backed home loan programs offer assistance with closing costs.
4. Ask About Seller Contributions: In some markets, sellers may agree to cover part of your closing costs as part of the home purchase negotiation.
5. Review Your Closing Disclosure: Make sure all fees are accurate and accounted for before signing.

Final Thoughts: Closing costs are an inevitable part of buying your first home but understanding them can help you make smart decisions. Remember, not all fees apply to every transaction, and many are negotiable. Use this guide as a reference and a starting point for discussions with your lender and other professionals that you will hire during this process. 

Ready to dive deeper? There's so much more to know about making smart, confident homebuying decisions. Start your journey........

Prevent Homebuyer Remorse Before It Begins

Grasping the details of your mortgage and utilizing tools like amortization schedules empowers you to take control of your finances and future. If you're contemplating homeownership, begin your education and.....

📌 Free Resource: Access our mini-class “Homebuying Chaos Unwrapped!” Let’s make your homeownership dream a reality—without the regret!

Ready to jump in? Join our premier course: The First Time Homebuyer Workshop and leave homebuyer remorse in the dust!  By learning now, you can avoid future regrets and ensure your first home is one of your most rewarding investments.

Disclaimer: This content is intended to educate first time homebuyers and let you know there are options. Discussing the issues with the professionals you hire during your home buying journey is prudent. We are not recommending or advising you on your financial or legal situation

Let’s demolish homebuyer remorse together—one empowered buyer at a time.

 Julie Marion 

Founder of The First Time Homebuyer Workshop, homebuyer educator, Urban Planner, Freddie Mac Credit Counselor, Real Estate Broker, Podcast Host, You Tube Contributor.

www.TheFirstTimeHomebuyerWorkshop.com

FAQ: Closing Costs for First-Time Buyers

Q: May I roll closing costs into my mortgage?
A: Yes, some lenders allow this, but it increases your monthly payment and total interest over time.

Q: Are closing costs tax-deductible?
A: Most aren’t, but mortgage interest and certain property taxes may be. Consult a tax professional.

Q: Who pays for closing costs — buyer or seller?
A: Usually the buyer, but in some cases sellers agree to cover part or all costs. (This is part of the "Negotiation") when buying a home.

Q: What is an amortization schedule?
A: It’s a breakdown of each mortgage payment over time, showing how much goes toward interest vs. principal. Take a look at this blog post Understanding Amortization Schedules

Q: How can first-time homebuyers save money on their mortgage?
A: By improving your credit score, making extra principal payments, and shopping for the best loan terms.

Q: Does making extra payments reduce interest?
A: Yes every extra payment toward principal shortens your loan term and reduces total interest paid.