Homebuyer Beware: Unexpected Mortgage Closing Costs to Watch Out For

What are closing costs?

Closing costs are the fees and expenses buyers pay at the end of a real estate transaction in addition to the home’s purchase price. They typically add up to about 2% to 5% of the full loan amount, depending on your specific circumstances. There are two main types of closing costs:

Lender and broker fees

Lender and broker fees are the costs charged by your mortgage lender and, if you used one, a mortgage broker for helping you secure your home loan. These can include loan origination fees, application fees, underwriting fees, and sometimes broker commissions for connecting you with the right loan.

In short, they cover the work involved in processing, approving, and finalizing your mortgage. The cost varies from lender to lender, and some fees are optional. By law, lender and broker charges, when added up, cannot exceed 3% of the total loan amount.

Third-party fees

The second group of closing costs is third-party fees. These are charged on nearly all loans. Think unavoidable costs like property taxes, title transfer fees, homeowner’s insurance and the like.

A lot of lenders don’t include third-party closing costs in their loan estimates or prequalification calculators because they’re not legally required to. That can leave borrowers surprised when those fees show up later, since they weren’t expecting them. It also causes confusion when another lender actually does include them upfront, making the numbers look very different.

Most lenders only show you estimated closing costs after you’ve already gone through the long mortgage application process. To avoid surprises, it helps to know these fees can show up late and plan for them upfront.

Lender and broker fees

Lender and broker fees can vary widely depending on who you work with, which means your choice of lender can directly impact how much you pay at closing. Shopping around and comparing offers can help you find lower fees and potentially save you money on the following loan costs:

1. Credit report fees

These are charges your lender collects to pull and review your credit history as part of the mortgage approval process. This helps them evaluate factors like your debt, payment history, and overall creditworthiness before deciding whether to approve your loan.

The amount can vary based on the lender, the type of credit report requested, and current market conditions. Some lenders cover the cost themselves, while others pass the fee directly on to borrowers.

The cost: $100 to $250

2. Loan application fee

Many lenders charge a fee just for taking and processing your loan application. Compared to the overall cost of a mortgage, it’s usually not a major expense, but it is an additional cost you’ll need to factor into the process.

The cost: Varies, but expect to pay up to $500

3. Loan origination fee

A loan origination fee is one of the biggest closing costs you’ll encounter when taking out a mortgage. Sometimes this fee is identified by one of its other monikers: the underwriting fee, the processing fee, or the administrative fee. Whatever its name, this fee is the bread and butter of most mortgage companies.

Loan origination means, quite simply, the creation of a mortgage. You might be wondering: why do lenders charge two separate fees for your application and loan origination? Your guess is as good as ours.

The cost: 0.5% to 1% of the loan amount, which can add up to thousands of dollars

4. Mortgage broker fee

If you work with a mortgage broker, expect to encounter a mortgage broker fee. This fee is usually a percentage of the total loan amount.

The cost: 1% to 2% of the loan amount

5. Private mortgage insurance

For buyers putting a down payment of less than 20% on a home, many lenders require private mortgage insurance (PMI). This insurance protects the lender in case you default on your mortgage payments. PMI tends to be a recurring annual fee, with the first year paid upfront at closing.

Once you’ve paid off 20% of the home, PMI usually stops being required. Note that some lenders require you to prepay for PMI in one lump sum. Some lenders also charge application fees for PMI.

The cost: 0.46% and 1.50% of the loan amount per year

»Learn more: Wondering how much PMI could add to your monthly mortgage payment? Use a PMI calculator to estimate the cost and get a clearer picture of what you can afford before you commit.

Third-party fees

The following are some common third-party fees. You’ll be hard-pressed to avoid them, no matter which lender you work with. However, it’s smart to work with a lender who’s at least upfront about these fees, so you can prepare for them and won’t find yourself with sticker shock when it’s time to close.

6. Appraisal and inspection

Before approving your financing, a mortgage lender needs to know how much the property you’re eyeing is actually worth so they can calculate your loan-to-value (LTV) ratio, the percentage that compares your loan amount to the home’s value. This helps determine how much of the purchase is being financed versus paid upfront.

Enter the appraisal. Most often, a neutral third-party appraisal company is brought in to determine the property’s value. Many lenders also require a home inspection to make sure your new house is safe and structurally sound.

The cost: Anywhere from $300 to $1000

7. Attorney fees

Some states require that a lawyer be present during closing transactions. Of course, everyone knows attorneys are not cheap, so this can add up quickly.

The cost: Varies widely depending on your location and the number of hours required by the attorney

8. Taxes

Taxes are a big part of a buyer’s closing costs, and how much you’ll pay really depends on where you’re buying. You’ll usually see prorated property taxes at closing, which just means you’re covering your share of taxes the seller already paid past your move-in date.

In some places, you might also have transfer or recording taxes when the home officially changes hands. These can add up to anywhere from a few hundred to several thousand dollars, depending on your home price and local tax rates

The cost: Varies greatly depending on the location

9. Homeowner’s insurance

The majority of lenders require that you purchase homeowners insurance before closing. Many will ask you to prepay for a year of insurance before settling the purchase. This insures the property in case of unforeseen damage.

The cost: Depends on your home’s location and value, not to mention which insurer you choose.

Miscellaneous fees

Closing costs don’t stop at lender charges and taxes. Several other fees can show up on your final bill depending on the property and loan type. These costs often cover important services like verifying ownership, protecting against risk, and ensuring the home meets certain requirements before it officially becomes yours.

While they can vary from one purchase to another, it helps to know what each one means so nothing catches you off guard at closing.

• Title fees: These are fees for services that check the home’s ownership history and make sure there aren’t any unpaid claims or liens on the property.
• Title insurance: This is a policy that protects you and your lender if any ownership issues pop up after closing and cause financial loss. The title insurance usually costs about 0.5% to 1% of your home’s purchase price.
• FHA, VA, and USDA fees: These are extra upfront or ongoing fees tied to government-backed loans that help insure or guarantee your mortgage.
• Pest inspection: This covers fees for inspections that check for termites or other pest damage that could affect the home’s structure or value.
• Flood determination: This is a fee for checking whether the home is in a flood zone and if you’ll need to get flood insurance. This may cost from $15 to $30.
• Survey fee: This covers the cost of confirming property boundaries and ensuring structures are within the legal lot lines. This costs an average of $2,300.
• Assumption fee: This is an expense when a buyer takes over (or “assumes”) the seller’s existing mortgage.
• Annual assessments: These are regular fees you pay for community or district services like local infrastructure, maintenance, or improvements in the area.
• Homeowners association (HOA) fees: These are ongoing dues paid to an HOA for things like shared amenities, neighborhood upkeep, and community rules enforcement. Homeowners with single-family homes typically pay around $300 per month in HOA fees.
• Escrow fee: This refers to a fee paid to a neutral third party that handles and secures all the money and paperwork during the closing process so everything is processed safely and correctly.

The cost: These fees can vary significantly depending on your circumstances

At the end of the day, the fees charged on your home loan will be specific to you, your property’s location, and the lender and settlement service providers you choose to work with.

How to avoid last-minute closing cost surprises

As you’ve seen, closing costs can come from all directions, from lender fees and taxes to title insurance and escrow charges. The good news is that most surprises can be avoided if you know what to look for and keep tabs on your costs throughout the mortgage process.

• Carefully review the Loan Estimate: Take the time to read through your Loan Estimate so you know which fees are included and what costs could change later on.
• Compare the Loan Estimate to the Closing Disclosure: Once you receive your Closing Disclosure, compare it to your original estimate to catch any new or higher fees before closing day.
• Ask lenders about escrow assumptions: Ask how much you’ll need to prepay for things like property taxes and homeowners insurance, since these costs can add more to your cash-to-close amount than expected.
• Budget a cash reserve above estimated closing costs: It’s a good idea to set aside a little extra money in case fees come in higher than expected or new charges pop up.
• Request updated estimates before closing: As your closing date gets closer, ask your lender for updated numbers so you have the clearest picture of what you’ll actually owe.

Calculate Your Closing Costs Before Buying

Don’t get caught off guard by extra fees at closing. Use a closing cost calculator to see what you might owe and plan ahead confidently.

Get Estimate

Close confidently with a real estate agent

Unexpected mortgage closing costs can catch you off guard, especially when you’re focused mainly on the down payment and purchase price. From lender fees and taxes to insurance and smaller administrative charges, these costs can add up quickly if you’re not prepared.

The good news is that when you understand what to expect ahead of time, you’re in a much better position to budget and avoid last-minute surprises. Taking the time to review your loan estimate and ask questions can help you keep the process clear and transparent. With the right preparation, closing day becomes less about surprises and more about confidently stepping into your new home.

To make the process even smoother, partner with a HomeLight-recommended real estate agent who can help you anticipate costs and guide you through every step.

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