What closing costs and fees do homebuyers pay, and how does escrow work?

What closing costs will I pay?

• Lender fees: origination, underwriting, processing, and any points you choose
• Appraisal and credit report
• Title insurance and settlement or escrow fees
• Recording fees and any transfer taxes set by your county and state
• Prepaids: a few months of property taxes and homeowners insurance, plus interest until month-end

These commonly add up to about 2% to 5% of the loan amount. See typical ranges on our costs page.

What does "escrow" mean at closing?

A neutral third party (an escrow or title company) holds your deposit, the loan money, and all the documents, and only releases everything when every condition is met. In California, an escrow company often runs this process; in Texas, Florida, and Colorado, it's usually the title company.

What is an escrow account after closing?

Most loans include an escrow account: each month, part of your payment goes into it, and your lender pays your property taxes and homeowners insurance from it when they're due. At closing, you fund a starting balance (plus a small cushion) so there's enough when the first bills arrive.

How can I lower my closing costs?

• Ask the seller for a credit toward your costs, within program limits.
• Take a lender credit in exchange for a slightly higher rate.
• Look into down payment assistance that also covers closing costs.
• Compare Loan Estimates from two or three lenders on the same day.

Example scenario (illustrative)

A first-time buyer in Fort Collins buys a $420,000 home with 5% down. Her Loan Estimate shows lender, title, and recording costs plus prepaid taxes and insurance totaling about 3.5% of the loan. Her agent negotiates a seller credit that covers about half, and she knows her exact cash to close weeks before signing.

Our take

Nobody likes surprise fees at the closing table. I'll walk you through every line of your Loan Estimate, including what we charge, and tell you which costs you can negotiate.