Closing Costs: Who Pays What
Closing costs are what it takes to originate and close your loan — typically 2% to 5% of the loan amount — split among the lender, third parties, and prepaid items. They look fixed on the page, but more of them are negotiable than most borrowers realize.
What's actually in them
Three buckets. Lender charges — the origination fee and any discount points. Third-party services — appraisal, title insurance, settlement, recording. And prepaids — prepaid interest, the first insurance premium, and property-tax and insurance reserves the servicer holds in escrow. Your Loan Estimate itemizes every line.
| On a $400,000 loan (illustrative) | Bucket | Estimate |
|---|---|---|
| Origination + any points | Lender (shoppable) | $2,000 |
| Appraisal, title, settlement | Third-party | $2,800 |
| Recording + transfer taxes | Government (fixed) | $700 |
| Prepaid interest, insurance, tax reserves | Your money | $3,500 |
| Total | ≈ 2.3% of the loan | ≈ $9,000 |
Prepaids aren't really "costs"
This trips up almost everyone comparing lenders: prepaid interest and escrow reserves are your money for your taxes and insurance — not fees the lender keeps. Two honest quotes can show different "cash to close" purely because of when in the month you close or how reserves are set. Compare the loan on its lender charges, not the headline cash number.
Who pays — and what's negotiable
The buyer pays most closing costs, but not all of it is fixed:
- Seller concessions. A seller can agree to cover part of your costs — a concession that's often easier to negotiate than a price cut, within program limits.
- Lender credits. Take a slightly higher rate and the lender can credit money toward costs — a lender credit. It shrinks cash to close but you pay for it monthly, for the life of the loan.
- Shoppable services. Lender fees (Section A) and some third-party services you can shop; government recording and transfer taxes you can't.
Common questions
How much are mortgage closing costs?
Typically 2% to 5% of the loan amount, split among lender charges (origination and points), third-party services (appraisal, title, recording), and prepaid items (interest, insurance, and tax reserves).
Are prepaids the same as lender fees?
No. Prepaid interest and escrow reserves are your own money for your taxes and insurance, not fees the lender keeps. They inflate 'cash to close' without being a cost of the loan.
Which closing costs can I shop or negotiate?
Lender fees (Section A) and some third-party services you can shop; government recording and transfer taxes you can't. Seller concessions and lender credits can also cover part of the total.
What's the difference between a seller concession and a lender credit?
A concession is the seller agreeing to cover part of your costs (within program limits). A lender credit is you accepting a higher rate so the lender covers costs — a 30-year trade for a short-term saving.
By L.W. Martin, Founder — 20 years in the mortgage business, including 15 running his own brokerage. About → · Updated September 2026.