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What Closing Costs Actually Cover

Closing costs are an unfortunate part of the home buying process. It refers to the cost involved in a real estate transaction beyond the price of the home. It is important to understand what closing costs are, who is responsible for the closing costs and how to keep closing costs as low as possible. The following is an overview of what closing costs actually cover. 

What are closing costs?

Closing costs are the fees and various payments made before a sale is made. The closing costs vary for each sale and the total amount is different for everyone. The lender must provide what is known as a good faith estimate for the closing costs at least three days within the home loan application. This estimate should provide detailed estimates of the amount the buyer or seller is required to pay. The total cost of closing costs generally ranges between two percent and five percent. The buyer often covers the closing costs, although the seller is allowed to and does cover it in some instances. 

What items make up closing costs?

There is a range of different closing costs that may be a part of a real estate transaction. It is important to check with the lender to determine all closing costs. However, the more common types of closing costs include:


  • Origination fee
  • Escrow fee
  • Appraisal fee
  • Homeowner’s insurance
  • Owner’s title insurance


Other fees may include but are not necessarily limited to discount points, title searches, surveys, deed recordings, credit report charges and various taxes. As mentioned, the total cost of closing depends on a range of factors, including the cost of the home, the location of the home and the lender. 

An example of closing costs

Although every situation is unique, an example of a closing cost can shed some light on what buyers and sellers can expect in the process. For example, let’s say someone purchases a home. The first charge will likely be the origination fee, which is charged by the lender for the creation of the loan. The buyer or seller may also have to pay for the appraisal and home inspection. They will also have an escrow fee, which is the charge for the handling of the transfer of the payment between the buyer and the seller. Lastly, the buyer may need to purchase owner’s title insurance and homeowner’s insurance. 

How to reduce closing costs

Of course, the best way to reduce closing costs is to get the seller to cover the cost. If this is not a possibility, then shopping around for the right lender can be a great way to find one that is willing to offer no closing costs or reduced closing costs. Lastly, it is time to negotiate and discuss with the lender to get the closing costs down as low as possible. Some might also benefit from having the closing costs rolled into the mortgage so that the buyer is not responsible for paying all of the closing costs at once.


EXIT Realty Bob Lamb & Associates is Murfreesboro’s most innovative real estate team.
EXIT Realty Bob Lamb & Associates
2630 Memorial Blvd, Murfreesboro, TN 37129
(615) 896-5656

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