When you’re buying a home, it’s exciting to think about moving in and decorating—but before you get to that stage, there are important financial details to understand. One of the biggest surprises for many buyers is closing costs. These are the fees and expenses associated with finalizing your loan and transferring ownership of the property. Let’s break them down so you know exactly what to expect.

1. Lender Fees

Lender fees are the charges from your mortgage lender for arranging and processing your loan. Some of these are negotiable, while others are not.

  • Loan Origination (or “Points”) – This is the loan officer’s commission.
  • Discount Points – An optional fee you can pay to lower your interest rate.
  • Underwriting & Processing Fees – Charges for reviewing your loan application and preparing your file.

Tip: Always discuss your options with your lender to see where there may be flexibility.

2. Hard Costs

These are third-party fees that lenders pass directly to you and are non-negotiable.

  • Credit Report – To pull and review your credit history.
  • Appraisal – To determine the property’s market value.
  • Tax Service Fee & Flood Certification – Standard requirements to verify tax and flood information.

3. Title Fees

Title companies play a vital role in ensuring the property’s ownership is transferred cleanly.

  • Title Insurance & Search Fees – Protect the lender (and sometimes you) against ownership disputes.
  • Recording Fees – Paid to the county to officially record your deed and mortgage.
  • Transfer Taxes – In Pennsylvania, this is typically 2% of the purchase price, split between buyer and seller, though it can vary by location. Some areas like Scranton and Philadelphia can have higher transfer tax.

4. Prepaid Costs

These are upfront expenses you’ll pay at closing to cover certain items in advance.

  • Homeowners Insurance – Often, the first year’s premium is due at closing.
  • Prepaid Interest – Since mortgage payments are made in arrears, you’ll pay interest from the day you close through the end of that month. For example, your September 1st payment covers interest from August.
  • Real Estate Taxes – Depending on when you close, you may need to prepay a portion of property taxes so your account is current.

5. Escrow Account Setup

Many lenders require an escrow account to manage your property taxes and homeowners insurance.

  • How It Works – You pay a portion each month with your mortgage, and the lender pays the bills when due.
  • Pros & Cons – It helps avoid large lump-sum bills, but you’ll need to deposit a few months’ worth of taxes and insurance upfront at closing.

6. Other Possible Fees

While not as common, you may also see:

  • HOA Transfer Fees – If your home is in a community with a homeowners association.
  • Real Estate Agent Fees – Typically negotiated between buyer and seller.

7. What’s Not Part of Your Closing Costs

It’s just as important to know what’s not included in your closing costs:

  • Home Inspections – These are for your own knowledge and peace of mind.
  • Specialty Inspections – Certain loan programs (like FHA or VA) may require water or pest inspections, but these are separate from standard closing cost calculations.

8. Reducing Your Closing Costs

The good news is, there are ways to offset these costs:

  • Seller Concessions – You can negotiate for the seller to pay some of your closing costs.
  • Lender Credits – Some lenders offer to cover part of your closing costs if you accept a slightly higher interest rate.

Final Thoughts

Closing costs can feel overwhelming at first, but understanding what’s included—and what’s not—makes the process smoother. Every transaction is a little different, so it’s important to review your Loan Estimate carefully and ask questions. With the right planning, you’ll feel confident about your final cash-to-close and be one step closer to enjoying your new home.

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