Your offer on a $400,000 home just got accepted. Your lender sends over the Loan Estimate — a standardized disclosure form — and the closing costs section shows $14,200. That number is real money, due at closing in addition to your down payment. Here is what every line item means, what you can negotiate, and what is set in stone.
The Three Categories of Closing Costs
Closing costs break into three buckets: lender fees, third-party fees, and prepaids. Lender fees are paid to your mortgage company. Third-party fees go to appraisers, title companies, and attorneys. Prepaids are not really "costs" — they are advance payments for ongoing expenses like property taxes and homeowner's insurance that you would owe regardless.
Lender Fees (Negotiable)
Origination fee: The lender's compensation for processing and underwriting your loan. Typically 0.5-1% of the loan amount. On a $340,000 loan (assuming 15% down), that is $1,700-$3,400. This is often the most negotiable line item — competing lenders may reduce or eliminate it to win your business.
Discount points: Optional. Each point is 1% of the loan amount and buys down your interest rate by approximately 0.25%. If your quote shows points, it means the rate you are being offered includes a rate buydown. You can often take a slightly higher rate to eliminate this cost.
Processing fee: $300-$700. Covers administrative costs of processing your application. Not universally charged but common. Negotiable with comparison shopping.
Underwriting fee: $500-$900. The lender charges this for the underwriter who reviews your file and makes the final approval decision. Similar to processing fees — shop lenders to find lower combined origination charges.
Third-Party Fees (Partially Negotiable)
Appraisal: $400-$600 for a standard single-family home, $600-$1,000 for multi-units or complex properties. Paid upfront at the time of appraisal, not at closing. You choose the lender, the lender chooses the appraiser — you cannot negotiate this directly, but some lenders use cheaper appraisal management companies.
Title search: $150-$400. A title company or attorney searches public records for liens, judgments, or ownership disputes on the property. Required by every lender.
Lender's title insurance: $500-$1,500 depending on the loan amount and state. Protects the lender (not you) if a title defect surfaces after closing. Required.
Owner's title insurance: $600-$2,000. Optional but strongly recommended — protects your ownership interest. A one-time premium that covers you as long as you own the property. On a $400,000 purchase, owner's title insurance typically runs $1,000-$1,500.
Attorney fee: $400-$1,200. Required in some states (Massachusetts, Georgia, New York, South Carolina). In states with escrow officers instead of attorneys, you pay an escrow/settlement fee of similar range.
Recording fee: $50-$250. Charged by the county to record the deed transfer and new mortgage in public records. Fixed by government; not negotiable.
Prepaids (Not Negotiable, But Budget for Them)
Prepaid interest: The interest that accrues between your closing date and the end of that month. On a $340,000 loan at 6.5%, daily interest is about $61. Close on the 15th and you prepay 16 days of interest: ~$975. Close on the 1st and you pay nearly a full month. Many buyers choose late-month closings to minimize this.
Homeowner's insurance (first year): $1,200-$2,400 for a $400,000 home, paid upfront at closing. Your lender requires evidence of coverage before funding.
Property tax escrow: Lenders typically collect 2-3 months of property taxes at closing to fund your escrow account. On a home with $5,000/year in taxes, expect $833-$1,250 at closing for the initial escrow deposit.
A Real Breakdown at $400K
Assuming 15% down ($60,000), $340,000 loan, in a non-attorney state:
| Line Item | Estimated Amount |
|---|---|
| Origination fee (0.5%) | $1,700 |
| Appraisal | $500 |
| Credit report | $30 |
| Flood determination | $25 |
| Title search | $250 |
| Lender's title insurance | $900 |
| Owner's title insurance | $1,200 |
| Settlement/escrow fee | $600 |
| Recording fee | $150 |
| Prepaid interest (mid-month close) | $600 |
| Homeowner's insurance (1yr) | $1,400 |
| Property tax escrow (2 months) | $800 |
| Total | $8,155 |
That is well below the $14,200 example. The gap comes from points and/or a higher origination fee. Always compare the "total lender fees" line across multiple Loan Estimates — lenders are required by law to provide a Loan Estimate within 3 business days of your application, and the format is standardized for easy comparison.
What Sellers Pay
Sellers typically pay real estate agent commissions (traditionally 5-6% of sale price, now negotiable following NAR rule changes in 2024). On a $400,000 home, that runs $20,000-$24,000. Sellers may also pay transfer taxes, prorated property taxes, and attorney fees depending on the state and negotiated contract terms. Buyer closing costs and seller closing costs are separate — do not combine them in your budgeting.
This article provides general real estate information for educational purposes. Consult a licensed real estate professional for advice specific to your market and situation.
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