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Home Buying 101: Understanding Closing Costs

Buying or selling a home requires patience, persistence and a whole lot of preparation.

Before buying a new home, consider these factors to determine if you are ready.

  • Make sure you have a steady income and can maintain your income at its current level or higher.
  • Monitor your credit report and find ways to increase your credit score.
  • Determine how long you think you will stay in your home to make sure it is a good financial investment. If you are only planning to be in the home a couple of years, the cost of closing costs alone may not make the investment worthwhile. (Read on to learn more about closing costs.)
  • Figure out your finances to determine what size loan you may be able to qualify for and how much you can safely spend on a mortgage each month. You may need to tighten your budget to bring spending costs down and stock more money away in your savings account. WaFd Bank offers a free online app-based budgeting tool where you can track your spending.
Young couple signing closing paperwork

The 411 on closing costs

When buying a home, you will likely have to pay about 3 to 4 percent of the cost of the home in closing costs. According to the Consumer Financial Protection Bureau, common mortgage closing fees include:

  • Government taxes
  • Prepaid costs like property taxes, homeowners insurance and any interest accrued from the time the home closes to when the first payment is due
  • Title insurance
  • Appraisal fees (an appraisal evaluates the value of the property)
  • Tax service fees (this service ensures the homeowner pays their property taxes on time)

Closing costs may vary based on your lender and the location of the home. Typically, the buyer pays for most of the closing costs, but the seller may end up paying some of the closing costs as part of the negotiation. In this case, the seller may ask for the buyer to pay a higher price for the home to offset the credit they provide toward the closing costs. This means the buyer may pay less out of pocket at the time of closing, but take on a slightly higher mortgage.

Make sure to ask for a loan estimate from any lenders you are considering to finance your new home. The Consumer Financial Protection Bureau recommends getting loan estimates from at least three lenders. These estimates should outline your closing costs and the terms of the loan. Schedule time to review these costs with each potential lender.

Before choosing your mortgage lender, make sure you:

  • Know you can repay the loan and afford the monthly payment
  • Feel confident that you did your homework and shopped around for the best loan
  • Understand whether your principal and interest payment could increase in the future
  • Know whether the loan you are getting has fees later on that you may not be able to afford, like a balloon payment (a large one-time payment you will have to make at the end of the loan term) or prepayment penalties (fees for paying off your home loan early)

A few days before you close on your home, you should receive a Closing Disclosure, which will include all of the loan details, estimated payments and closing costs. Make sure to compare that disclosure with the loan estimate you received from your lender.

Need help managing your money or are applying for a home loan?

We're here to help. Call us at 800-324-9375 or visit to open an account today or learn more. WaFd Bank offers mortgage loans with competitive interest rates.

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