Your down payment is just the beginning — closing costs can sneak up fast

Many first-time buyers work hard to save for a down payment — and that’s great.
But what catches most people off guard is this:

You also need to save for closing costs — and they’re not cheap.

In fact, they often range from 3% to 6% of the home’s price depending on your location, the type of loan, and how the deal is structured.

If you’re buying a $300,000 home, that means $9,000 to $18,000 in additional costs — on top of your down payment.

What Are Closing Costs?

Closing costs are all the fees, taxes, and prepaid expenses that come with finalizing a home purchase. They vary depending on:

  • Your state or county
  • The lender you use
  • The day of the month you close
  • Whether you’re financing or paying cash
  • Who pays what (some can be negotiated)

Here’s what you might see in your closing disclosure:

The Major Components of Closing Costs

  1. Appraisal Fee
    • Typically $500–$1,500
    • Paid to a licensed appraiser to verify the home’s market value for the lender.
  2. Loan Origination/Underwriting Fee
    • Often $500–$1,000 or more
    • Charged by the lender to process your loan.
  3. Title Insurance & Title Services
    • $1,000–$2,500 depending on loan size
    • Includes both an owner’s and lender’s policy (the lender requires this).
  4. Escrow/Settlement Fees
    • Paid to the escrow company to handle paperwork, funds, and the closing process
    • Varies by region — often $500–$1,200.
  5. Prepaid Property Taxes & Homeowners Insurance
    • Lenders require you to prepay taxes and insurance to fund your escrow account
    • You’re basically paying up front so the lender has money to cover your first year’s bills.
  6. Short Interest
    • One of the most misunderstood costs
    • Here’s how it works:
      When you make a mortgage payment, you’re actually paying last month’s interest.
      So if you close on October 15, your first payment won’t be due until December 1 (which covers November).
      But what about the interest from Oct 15–Oct 31?
      You pay that “gap” at closing — that’s short interest.

      • If you close early in the month, you’ll owe more
      • If you close near the end of the month, you’ll owe less
         Tip: Closing later in the month reduces this cost!
  7. Discount Points
    • What is a point? One point = 1% of your loan amount
      • On a $300,000 loan, one point = $3,000
    • Points are prepaid interest — you pay them now to get a lower interest rate.
      • Example:
        Your lender offers 6.5% with no points,
        or 6.0% if you pay 2 points ($6,000 upfront).
      • The trade-off: lower monthly payments vs. higher closing costs
         Tip: If you plan to keep the home long-term, paying points may save you money. If not, skip them.
  8. Recording Fees & Transfer Taxes
    • Recording fees are paid to the county to officially document your deed and mortgage
    • Transfer taxes (if applicable in your state) are like sales tax for real estate
      • Can be 0.5%–2% of the purchase price in some states
  9. Mortgage Taxes (in certain states)
    • Some states charge a tax just for getting a mortgage (yes, really)
    • Could be 0.75%–1% of your loan amount — that’s $2,250–$3,000 on a $300,000 loan
  10. Miscellaneous Fees
    • Credit report fee
    • Flood certification
    • Notary tip (in some areas — $50–$100)
    • Courier or wire transfer fees
    • Doc prep or attorney fees (required in some states)

Real Talk: Why This Catches Buyers Off Guard

Most people save for the down payment — maybe 3.5% for an FHA loan — and think they’re ready.
But then they get hit with a $9,000–$12,000 closing disclosure they didn’t see coming.

And yes, it can blow up the whole deal.

House Karma’s Take

We don’t want that to happen to you.

Here’s what we recommend:

  • Use the closing cost calculator on our site (it factors in your location)
  • Budget for at least 6% of the purchase price (3.5% down + ~2.5% closing costs)
  • Ask the seller to cover part of your closing costs — this can often be negotiated
  • Consider lender credits — take a slightly higher interest rate in exchange for help with fees
  • And always close near the end of the month if possible — it can save you hundreds in short interest

Bottom Line

Your down payment gets you in the door.
Your closing costs seal the deal.

You can absolutely buy a home without paying every dime up front — especially with the right strategy and support.

But don’t go into it blind.
Know the numbers, plan ahead, and use every tool at your disposal.

At House Karma, we’ve got the calculators, checklists, and experts to guide you — so you can buy smart, not sorry.