Closing Costs: Who Pays What
Closing costs are what it takes to originate and close your loan — typically 2% to 5% of the loan amount — split among the lender, third parties, and prepaid items. They look fixed on the page, but more of them are negotiable than most borrowers realize.
What's actually in them
Three buckets. Lender charges — the origination fee and any discount points. Third-party services — appraisal, title insurance, settlement, recording. And prepaids — prepaid interest, the first insurance premium, and property-tax and insurance reserves the servicer holds in escrow. Your Loan Estimate itemizes every line.
Prepaids aren't really "costs"
This trips up almost everyone comparing lenders: prepaid interest and escrow reserves are your money for your taxes and insurance — not fees the lender keeps. Two honest quotes can show different "cash to close" purely because of when in the month you close or how reserves are set. Compare the loan on its lender charges, not the headline cash number.
Who pays — and what's negotiable
The buyer pays most closing costs, but not all of it is fixed:
- Seller concessions. A seller can agree to cover part of your costs — a concession that's often easier to negotiate than a price cut, within program limits.
- Lender credits. Take a slightly higher rate and the lender can credit money toward costs — a lender credit. It shrinks cash to close but you pay for it monthly, for the life of the loan.
- Shoppable services. Lender fees (Section A) and some third-party services you can shop; government recording and transfer taxes you can't.
By L.W. Martin, Founder — 20 years in the mortgage business, including 15 running his own brokerage. About → · Updated August 2026.