Closing costs are one of the biggest surprises for homebuyers. Here's everything you need to know — what they are, how much to expect, and how to keep them as low as possible.
Closing costs are the fees and expenses you pay when finalizing a real estate transaction — beyond the purchase price of the home. They cover everything from lender fees and title work to government recording charges and prepaid items like insurance and taxes.
For buyers, closing costs typically range from 2% to 5% of the purchase price. On a $400,000 home, that's roughly $8,000 to $20,000 you'll need in addition to your down payment.
Sellers have closing costs too — often even higher than buyers once agent commissions are factored in. Understanding what to expect on both sides of the transaction helps you plan your budget and avoid last-minute surprises at the closing table.
Here's what buyers commonly pay at closing, with typical cost ranges for a $400,000 home purchase
Sellers have their own set of fees — often totaling 6% to 8% of the sale price once commissions are included
PITI stands for Principal, Interest, Taxes, and Insurance — the four components of your total monthly mortgage payment. Understanding PITI helps you know exactly where your money goes each month.
The portion of your monthly payment that goes toward paying down your loan balance. In the early years of your mortgage, a smaller percentage goes to principal. Over time, more and more of each payment reduces your balance.
The cost your lender charges for borrowing the money. Interest is calculated on your remaining balance, so it's highest in the early years of your loan and decreases as you pay down principal.
Property taxes assessed by your local government, typically collected monthly by your lender and held in an escrow account. In Massachusetts, property tax rates vary by town and are reassessed periodically.
Homeowners insurance protects your property against damage and liability. Your lender requires it as long as you have a mortgage. If your down payment is less than 20%, you'll also pay private mortgage insurance (PMI).
With a $360,000 loan at 6.5% over 30 years, 10% down, in a Massachusetts town with a $12/thousand tax rate:
Principal & Interest
$2,275
Property Taxes
$400
Homeowners Insurance
$150
Total PITI
$2,825
Closing costs aren't set in stone. Here are proven strategies to bring them down.
Get Loan Estimates from at least 3 lenders and compare fees side by side. Origination fees, rate lock fees, and underwriting charges can vary significantly.
Ask the seller to cover a portion of closing costs as part of your purchase offer. Seller concessions of 3-6% are common depending on the loan type and market conditions.
Accept a slightly higher interest rate in exchange for a lender credit that offsets your closing costs. This makes sense if you plan to refinance or sell within a few years.
Closing later in the month reduces the prepaid interest you owe at closing, since you only pay per-diem interest from the closing date through month-end.
Massachusetts offers MassHousing and ONE Mortgage programs that can provide closing cost assistance and reduced fees for qualifying buyers.
Title insurance and settlement fees can vary. While your lender may suggest a title company, you have the right to shop around for better rates.
Here's a realistic breakdown of what closing costs might look like on a $400,000 purchase in Massachusetts with 10% down.
This is an estimate for illustrative purposes only. Your actual closing costs will vary based on your specific loan terms, property location, and lender fees. I'll provide a detailed Loan Estimate tailored to your situation.
Common questions about mortgage closing costs
In some cases, yes. With a refinance, you can often roll closing costs into the new loan balance. For a purchase, you can't add closing costs to the loan directly, but you can negotiate seller concessions (where the seller credits you for closing costs) or accept a higher interest rate in exchange for a lender credit. VA loans also allow the funding fee to be financed into the loan.
Both buyers and sellers have closing costs, but they pay for different things. Buyers typically cover loan-related fees (origination, appraisal, title insurance, escrow), while sellers usually pay real estate agent commissions and transfer taxes. However, everything is negotiable — in many transactions, the buyer asks the seller to contribute toward buyer closing costs as part of the purchase offer.
A good rule of thumb is 2% to 5% of the purchase price for buyer closing costs. On a $400,000 home, that's $8,000 to $20,000. The exact amount depends on your loan type, down payment, location, and which fees apply. I'll provide a detailed Loan Estimate early in the process so there are no surprises.
Massachusetts tends to have slightly higher-than-average closing costs due to the requirement for attorneys at closing and the state excise tax ($4.56 per $1,000 of the sale price). Buyers should typically budget 2.5% to 4% of the home price, and sellers should expect 6% to 8% including agent commissions and the excise tax.
Some closing costs are tax deductible. Prepaid mortgage interest (points), property taxes, and real estate taxes paid at closing may be deductible. However, fees like appraisal costs, title insurance, and attorney fees are generally not deductible for a primary residence. Always consult a tax professional for advice specific to your situation.
Closing costs are due on your closing day — the day you sign all final documents and take ownership of the home. You'll typically bring a cashier's check or wire the funds. Your lender will provide a Closing Disclosure at least 3 business days before closing so you know the exact amount.
Every transaction is different. I'll give you a clear, detailed breakdown of exactly what to expect — no surprises at the closing table.