What Are Closing Costs, and How Much Should I Save?
Closing costs are the thing people forget.
Picture this. You’ve saved up exactly the amount you set out to save for your down payment. You did the hard part. You call your realtor and your lender ready to go, and they tell you that you need thousands of dollars more, because closing costs are a separate thing you hadn’t counted.
I would rather you hear that from an article than from me on the phone. So let’s talk about it.
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Three categories
I find it easiest to split closing costs into three buckets.
- Lender costs. What it costs to originate and process your loan.
- Third-party costs. Everyone else involved in the transaction who provides a service and charges for it.
- Prepaids. Costs of owning the home that get collected up front rather than billed to you later.
Add those three together and you have your closing costs. What the total actually comes to varies with your price range, your state, and your county, which is why nobody can quote it to you accurately over coffee.
A rule of thumb to start with
If you want a number to plan around while you’re still saving, use 3% of the purchase price you’re shopping in, on top of your down payment, not instead of it.
That is generic on purpose. It’s a figure to save against, not a quote. When we know your actual price range, county, and loan, we can replace it with real numbers.
But it beats saving nothing for closing costs, which is what most people do.
What you’re actually paying for
Here’s the part that reframes it.
When you buy a home, there are dozens of people involved in that transaction. Every one of them is providing a service and playing a part in getting you into the house. Title companies. Appraisers. Your lender. Your realtor. All of them have a cost attached, and that’s what’s going into those first two buckets.
Then there are the prepaids, and these are the ones worth understanding properly. Once you own the home, whether or not you borrowed a penny to buy it, you have to carry an insurance policy on it. And your state, city, and sometimes your county will charge taxes for owning it. Those get collected as part of your closing too.
Which leads to the thing I most want you to take away.
They aren’t really “loan” closing costs
Don’t think of these as the cost of getting a mortgage. Think of them as the cost of buying a home.
Some of these costs would be there whether or not you borrowed any money at all. A cash buyer still pays for title. A cash buyer still insures the house. A cash buyer still owes the property taxes.
Once you see it that way, closing costs stop feeling like a penalty the lender invented and start looking like what they are: the cost of the transaction, most of it going to people who aren’t your lender.
You need more than a good rate
Every situation is unique, and closing costs genuinely do vary by situation and by location.
So if you’ve got a price range in mind and you want to know what it will actually take to get to the finish line in your county, that’s a conversation worth having before you’re in escrow rather than during it.
A rate tells you what the loan costs. A plan tells you what the day costs.
Common questions
What are closing costs?
They fall into three buckets. Lender costs, which are what it costs to originate and process your loan. Third party costs, which are everyone else involved in the transaction who provides a service. And prepaids, which are costs of owning the home collected up front rather than billed to you later.
How much should I save for closing costs?
As a starting point while you are still saving, use 3% of the purchase price you are shopping in, on top of your down payment rather than instead of it. The real figure varies with your price range, your state and your county, so treat it as a savings target and not a quote.
Are closing costs just loan fees?
No, and this is the part that reframes them. Dozens of people are involved in a purchase and each provides a service with a cost attached. Title companies, appraisers, your lender and your realtor are all in there, and some of those costs would exist even for a buyer paying cash.
What are prepaids?
Costs of owning the home that get collected at closing rather than billed later. Once you own the house you have to carry an insurance policy on it whether or not you borrowed anything, and your state, city and sometimes your county charge taxes for owning it.
The three buckets are the same for everyone. What they add up to is local. Ask about your own situation: your price range, your county, the savings you’ve already got. It’s Mike’s AI, so it’s awake at 11pm, and it collects nothing.
Ask Mike’s AI
Ready for a person?
If you’re saving toward a purchase right now, getting this number right is worth a phone call.
- Book a time with my team: we’ll put real closing costs against your actual price range and county
- Start an application: if you already know you’re ready to move
- Or call the office on (314) 478-3699
This information is not intended to be an indication of loan qualification, loan approval or a commitment to lend. Other limitations may apply. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all dollar amounts. Fairway is not affiliated with any government agencies.
Mike Swaleh, Area Manager, NMLS #739145. Fairway Independent Mortgage Corporation, NMLS Entity ID #2289. Equal Housing Opportunity.
What would closing cost you?
The article is the same for everyone. Your numbers aren’t. Ask about your own situation — whatever’s actually on your mind. It answers straight away.
You’re chatting with Mini Mike, an AI built on Mike’s own answers, not the real Mike. No forms and no contact details needed to ask.
Why people work with Mike
This information is not intended to be an indication of loan qualification, loan approval or a commitment to lend. Not all customers will qualify. Fairway is not affiliated with any government agencies. Mike Swaleh, Mortgage Advisor, NMLS #739145. Fairway Independent Mortgage Corporation, NMLS Entity ID #2289. Equal Housing Opportunity.
