You’ve found your dream home, your offer has been accepted, and your loan is approved. You’re ready to move in—but first, there’s one final step: the closing.

Also known as settlement, the closing is the process of officially transferring ownership from the seller to the buyer. This step can be overwhelming, with a substantial amount of paperwork to sign and several fees to cover, including the down payment and closing costs. For many buyers, these fees remain unclear, leading them to pay large sums without fully understanding the details.

It’s essential to familiarize yourself with these closing costs, which include both mortgage-related and government-mandated fees. While costs vary depending on location, here are some common ones:

• Appraisal Fee: Covers the cost of a professional appraisal of the property. This may have been paid upfront during your loan application.
• Credit Report Fee: Pays for the credit report requested by the lender, which also might have been covered when you applied.
• Loan Origination Fee: A fee (usually 1% of the mortgage) that covers the lender’s cost to process the loan.
• Loan Discount: If you choose to pay points to reduce your interest rate, this fee applies. Each point costs 1% of the loan.
• Title Insurance Fees: Include title search, examination, insurance, and other title-related expenses.
• PMI Premium: If your down payment is low, your lender may require mortgage insurance to protect against foreclosure losses. Once you have 20% equity, you can generally request to cancel this insurance.
• Prepaid Interest Fee: Covers interest from your purchase date until your first mortgage payment. This fee varies depending on the purchase date within the month.
• Escrow Accounts: In some areas, lenders set up escrow accounts to cover future property taxes and homeowner’s insurance. Typically, you’ll pay one year’s insurance premium and a few months of taxes at closing.
• Recording Fees and Transfer Taxes: These state fees cover the recording of purchase documents and the transfer of ownership.

Be sure to discuss specific fees with a real estate professional in your area to understand what to expect. Remember, closing costs can often be negotiated with the seller during the offer stage, and in some cases, the seller may agree to cover them entirely.