What is Closing Costs?

Closing costs represent the accumulation of fees, taxes, and administrative expenses paid by both homebuyers and sellers at the final consummation of a real estate transaction to secure a mortgage and legally transfer property ownership. Typically ranging between 2% and 5% of the total mortgage amount, closing costs are distinct from the down payment. They cover the services rendered by the lender, title companies, underwriters, home appraisers, county recording offices, and other third parties involved in validating the transaction.

Under the Consumer Financial Protection Bureau's (CFPB) TILA-RESPA Integrated Disclosure (TRID) rules, lenders are legally required to manage and disclose these costs transparently. Within three business days of submitting a loan application, borrowers must receive a Loan Estimate (LE) detailing projected closing costs. At least three business days prior to closing, lenders must provide a Closing Disclosure (CD). Under TRID tolerance rules, certain fees cannot increase from the initial estimate (zero-tolerance bucket, including lender fees and transfer taxes), while other optional services selected from the lender's approved list are capped at a 10% cumulative increase. Non-lender fees, such as prepaid homeowner's insurance and initial escrow deposits, carry no tolerance restrictions. Borrowers can negotiate with sellers to pay a portion of these fees via seller concessions, which are subject to regulatory caps based on the loan program and LTV ratio.