If you’re buying your first home, you’ve probably heard about closing costs—but what exactly are they? A lot of first-time buyers focus on the down payment and don’t realize they’ll need additional funds to finalize their purchase. Closing costs cover everything from lender fees to title insurance, HOA fees and prepaids, and they typically range from 2% to 5% of the home’s price.
At Ramon Espinoza Home Loans, we make sure our clients understand every cost upfront—no surprises. Let’s break down what closing costs are, what they include, and how you can reduce them.
What Are Closing Costs?
Closing costs are the fees and expenses that come with finalizing your mortgage. They aren’t part of your loan balance, and they need to be paid at closing. These costs cover services that ensure your home purchase is legal, secure, and properly documented.
What’s Included in Closing Costs?
Closing costs are made up of four main categories:
- Lender Fees – These are the costs associated with processing your loan, including origination fees and underwriting.
- Title & Escrow Fees – Title companies charge for researching the home’s title history, ensuring there are no ownership disputes. You’ll also pay escrow fees, which cover handling the legal transfer of funds.
- Third-Party Fees – These include the appraisal, credit report, tax service fees, and other necessary checks to finalize the loan.
- Prepaid Costs – Home insurance and property taxes are typically paid upfront. You’ll also set up an escrow account to cover future payments.
- HOA – The HOA can have fees anywhere from a couple hundreds to thousands of dollars. These may include capital improvement fees to annual golf fees.
On a $400,000 home, closing costs can run about $8,000 to $20,000, depending on the loan type and location.
How Can You Lower Closing Costs?
If those numbers sound high, don’t worry—there are ways to reduce the amount you need to bring to the table.
- Seller Credits – In some cases, the seller may agree to cover part or all of your closing costs.
- Lender Credits – Some lenders allow you to roll part of the costs into your loan in exchange for a slightly higher interest rate.
- Down Payment Assistance Programs – Some programs help with both the down payment and closing costs.
- Shopping Around – Comparing title companies and homeowners insurance providers can help reduce fees.
Do Closing Costs Change for Different Buyers?
For most buyers, closing costs stay within the same general range. However, costs increase for second homes and investment properties because lenders consider them a higher risk. On a primary residence, costs are typically lower.
For first-time buyers, it’s important to budget for closing costs early so you’re prepared when it’s time to sign the final paperwork. Know your numbers.
The Bottom Line
Closing costs are a necessary part of buying a home, but they don’t have to be overwhelming. Understanding what they include and how to minimize them puts you in a better position when it’s time to buy.
We help first-time buyers navigate every step of the process, including finding ways to reduce upfront costs. If you’re ready to learn more, let’s talk.
📩 Contact us today at clemente@ramonespinozahomeloans.com or ramon@ramonespinozahomeloans.com.
Se habla Español.
