Your down payment isn't the only cash you need to buy a home. On closing day you'll also pay closing costs — a bundle of one-time fees that commonly run 2% to 5% of the purchase price. On a $400,000 home that's $8,000 to $20,000, separate from the down payment. Buyers who forget this end up short at the worst possible moment. Here's what makes up that number and how to shrink it.

What's actually in closing costs

  • Lender / origination fees. What the lender charges to process and underwrite the loan. Sometimes shown as an origination fee plus assorted processing charges.
  • Discount points (optional). Prepaid interest you can buy to lower your rate — each point is 1% of the loan for a set rate reduction. Worth it only if you'll stay long enough to break even.
  • Appraisal. An independent valuation the lender requires to confirm the home is worth the loan.
  • Title search and title insurance. Confirms the seller can legally sell and protects against ownership disputes later.
  • Escrow / settlement fees. Paid to the company that handles the closing paperwork and funds.
  • Recording and transfer taxes. Government charges to record the deed and transfer ownership — these vary a lot by location.
  • Prepaids. Upfront property tax and homeowner's insurance the lender collects to seed your escrow account, plus prepaid interest for the rest of the closing month.

Why the range is so wide

Transfer taxes and prepaids are the biggest swing factors. Some states and cities levy substantial transfer taxes; others charge almost nothing. Prepaid property tax depends on your local rate and the time of year you close. That's why "2–5%" is a range, not a single figure — your location does most of the work.

Who pays what

Buyers typically cover lender fees, appraisal, and their prepaids; sellers often pay the real-estate agent commissions and sometimes a share of transfer taxes. But much of this is negotiable and varies by local custom and market conditions.

Ways to reduce closing costs

  • Shop lenders. The official Loan Estimate makes fees comparable across lenders — compare at least three. Origination fees vary more than people expect.
  • Ask for seller concessions. In a buyer-friendly market, sellers may agree to cover part of your closing costs to close the deal.
  • Negotiate or shop third-party services. You can often choose your own title company, which can save money.
  • Consider a lender credit. Some lenders offer credits toward closing costs in exchange for a slightly higher rate — useful if you're cash-tight now.
  • Time your closing. Closing later in the month reduces prepaid interest owed at closing (a small effect, but real).

Budget for the full cash-to-close

The number that matters is "cash to close" — your down payment plus closing costs minus any credits. A buyer putting 10% down on a $400,000 home isn't bringing $40,000; they're bringing roughly $48,000–$60,000 once closing costs are added. Plan for the full figure, and keep an emergency cushion on top for the inevitable early-ownership expenses.

The bottom line

Closing costs are one-time fees of roughly 2–5% of the price, driven largely by local transfer taxes and prepaids. Shop lenders using the Loan Estimate, ask about seller concessions and lender credits, and always budget your total cash-to-close — not just the down payment — so nothing derails you at the finish line.