Closing Costs: What They Cover, Who Pays and How Much They Can Rise
Closing costs are the fees and prepaid items you pay to finish a home purchase, on top of the down payment. For a mortgage, federal rules require the lender to list them in a standard form, the Loan Estimate, within three business days of your application, and again in the Closing Disclosure at least three business days before closing. This page shows what is on those forms, which fees are allowed to rise and by how much, and how closing costs are treated for tax. It does not give an average dollar figure, because we found no government source for one: use your own Loan Estimate.
Table of Contents
What Closing Costs Are
The federal Closing Disclosure rule defines "total closing costs" as the sum of two groups: loan costs (what the lender and the settlement providers charge to make the loan) and other costs (government fees, prepaid items and the first escrow deposit), less any lender credits. The Loan Estimate shows the same groups as estimates; the Closing Disclosure shows the final figures. Your down payment is separate. The form's "Cash to Close" line then starts from total closing costs, subtracts any closing costs paid from the loan amount, and adds the down payment and other funds from you.
What Is on the Form
| Section of the form | What goes in it |
|---|---|
| Origination charges | What you pay the lender and any loan originator for making the loan, including points paid to lower the rate |
| Services you cannot shop for | Settlement services you may not choose the provider for |
| Services you can shop for | Services the lender requires where you may choose the provider; the lender must give you a written list of providers |
| Taxes and other government fees | Recording fees and transfer taxes paid to state and local governments |
| Prepaids | Amounts paid in advance of your first payment: homeowner's insurance premium, mortgage insurance premium, prepaid interest and property taxes |
| Initial escrow payment at closing | The first deposit into your escrow account for recurring charges such as property tax and insurance |
Loan costs are the first three sections; other costs are the last three (the form also carries an "other" section for items that fit nowhere else). Each section has a subtotal, and the two groups add to total closing costs. Because every lender uses the same form, you can compare Loan Estimates section by section.
How Much Can a Fee Rise Before Closing?
The rule sorts Loan Estimate charges into three groups. Most are held to the amount first disclosed; some may rise by 10% in total; some may change with no cap, as long as the original estimate was made in good faith.
| Group | What can happen | Which charges |
|---|---|---|
| Cannot rise | The final charge may not exceed the amount on the Loan Estimate | Every charge not named in the two rows below |
| Total may rise up to 10% | The sum of these charges may exceed the Loan Estimate total by no more than 10% | Recording fees, and third-party services where the lender lets you shop and the provider is not the lender or an affiliate |
| May change without a cap | Good faith if consistent with the best information the lender had at the time | Prepaid interest, property insurance premiums, escrow deposits, services you chose that are not on the lender's list, and property taxes and other third-party services the lender did not require |
There is an exit. If a "changed circumstance" occurs, such as new information about you or the deal, or an extraordinary event, the lender may issue a revised estimate and use the new amounts. A revised Loan Estimate is how a fee you were told about can legitimately change.
Worked Example: The 10% Limit
This is our own arithmetic, not from a source, using made-up numbers. Suppose your Loan Estimate lists $2,500 for services you can shop for and $500 in recording fees, with providers that are not the lender's. The 10% bucket totals $3,000, so the final total of those charges may reach $3,300 ($3,000 × 1.10). If title and recording come in at $3,250, the lender is within the rule even if one line rose sharply. If they come in at $3,400, that is $100 over the limit, and the increase is outside the rule unless a changed circumstance applies. The lender's own origination charge on the same form cannot rise at all unless a changed circumstance applies.
The Timeline: Three Dates That Matter
| When | What the lender must do |
|---|---|
| Within 3 business days of your application | Deliver or mail the Loan Estimate |
| At least 7 business days before closing | Loan Estimate must already be delivered or mailed |
| At least 3 business days before closing | You must receive the Closing Disclosure |
If a form is not handed to you in person, you are treated as having received it three business days after it is delivered or mailed. Before you have received the Loan Estimate and told the lender you intend to proceed, the lender may not charge you a fee, except a reasonable fee for your credit report. After the Closing Disclosure is issued, most changes can be corrected at or before closing. A new three-business-day wait is required only if the APR becomes inaccurate, the loan product changes or a prepayment penalty is added.
Closing Costs and Your Taxes
The IRS says the only closing costs you can deduct are home mortgage interest and certain real estate taxes, deducted in the year you buy if you itemize. Other costs may be added to your home's tax basis, which can reduce a taxable gain when you sell. A fee counts as a buying cost if you would have had to pay it even when buying with cash.
| Treatment | Examples (IRS Publication 530) |
|---|---|
| Deductible if you itemize | Home mortgage interest; certain real estate taxes |
| Added to basis | Abstract fees, legal fees including title search, recording fees, surveys, transfer or stamp taxes, owner's title insurance |
| Neither deductible nor added to basis | Fire insurance premiums, charges for getting the mortgage such as loan assumption fees, credit report cost, lender-required appraisal fee |
| Mortgage insurance premiums | Not deductible on 2025 returns: Publication 530 (2025) says the deduction has expired. For tax years beginning after December 31, 2025, Public Law 119-21 section 70108 turns off the 2021 end date for treating these premiums as interest, so they can count as qualified residence interest on 2026 returns, subject to the other conditions in the law |
Rules differ for points, for mortgage insurance by tax year and for who pays what under your contract. See IRS Publication 530 and ask a tax professional about your case.
Wire Fraud at Closing
The FTC warns that scammers send emails impersonating your loan officer or another real estate professional, claiming there was a last-minute change, and ask you to wire closing money to a different account. If you get such an email, contact your lender, broker or agent at a number or address you know is real.
Sources & Methodology
- Loan Estimate and Closing Disclosure timing, good-faith tolerances, written list of providers, fee restriction before the Loan Estimate, waiting period for changes: 12 CFR 1026.19(e) and (f), Regulation Z (TRID), eCFR. Retrieved Nov. 5, 2026.
- Loan Estimate sections and what each lists: 12 CFR 1026.37(f) to (h), eCFR. Retrieved Nov. 5, 2026.
- Closing Disclosure sections: 12 CFR 1026.38, eCFR. Retrieved Nov. 5, 2026.
- Tax treatment of settlement or closing costs: IRS Publication 530 (2025), Tax Information for Homeowners, page last reviewed Apr. 30, 2026. Retrieved Nov. 5, 2026.
- Mortgage insurance premiums for tax years beginning after 2025: Public Law 119-21, section 70108, effective for taxable years beginning after December 31, 2025. Retrieved Nov. 6, 2026.
- Wire fraud warning: Federal Trade Commission, Shopping for a Mortgage FAQs. Retrieved Oct. 27, 2026.
- The $3,000 example is our own illustration with made-up numbers. We give no average closing-cost figure because we have not verified one against a government source.
FAQ
How much are closing costs?
It depends on the loan, the lender and the state. Your Loan Estimate shows the figure for your loan, and the lender must deliver it within three business days of your application.
Can closing costs go up after the Loan Estimate?
Some can. Most lender charges cannot exceed the Loan Estimate. Recording fees and shoppable third-party services may rise by 10% in total, and prepaid interest, insurance and escrow deposits can change. A changed circumstance lets the lender issue a revised estimate.
When do I get the Closing Disclosure?
You must receive it at least three business days before closing. If it is mailed, you are treated as receiving it three business days after it goes out.
Are closing costs tax deductible?
Mostly no. Mortgage interest and certain real estate taxes can be deducted if you itemize; certain other costs are added to your home's basis.
Can I shop for the title company?
Where the form lists a service under "Services you can shop for," yes: the lender must give you a written list of providers and say you may choose a different one.
General information, not financial advice.