You pay closing costs in stages, not in one lump sum. The first payment — earnest money — is due within days of your signed offer. Appraisal and inspection fees come due in the first few weeks after that. The largest payment, called “Cash to Close,” is due on closing day itself. For most buyers, the total lands between 2% and 5% of the purchase price, so a $350,000 home means roughly $7,000 to $17,500 above the down payment.
The First Payment: Earnest Money
Your earliest closing-related payment is the earnest money deposit, sometimes called a good-faith deposit. It’s typically 1% to 3% of the purchase price and is due within a few days of signing the purchase contract. The funds go into an escrow account held by the title company or another neutral party.
Earnest money isn’t an extra cost. It gets applied toward your down payment or closing costs at settlement, which reduces the Cash to Close figure you’ll owe later. If the deal falls apart under a contract contingency (a failed inspection, denied financing), you generally get the deposit back. Walk away without a valid contingency and the seller can keep it.
Fees Due Weeks Before Closing
Once your offer is accepted, several charges come due during the application and inspection window. You pay these directly to the vendor, usually by credit card or personal check when the service is ordered or performed. They are separate from the money you’ll bring to the closing table.
- Credit report fee. Your lender pulls a tri-merge credit report when you apply. Federal rules let the lender collect this fee before issuing a Loan Estimate, and the charge is typically less than $30.1Consumer Financial Protection Bureau. How Much Does It Cost to Receive a Loan Estimate?
- Appraisal fee. Lenders require an independent appraisal to confirm the property’s value supports the loan amount. Expect $300 to $500, though fees can exceed $600 in some metro areas or on larger, more complex properties.
- Home inspection fee. A licensed inspector examines the structure and major systems for roughly $300 to $500, depending on size, age, and location. Specialty inspections for radon, mold, termites, or septic add to the total.
Pay these on time. A delayed appraisal or inspection stalls your loan file and puts contract deadlines at risk.
Three Business Days Out: The Closing Disclosure
Federal law requires your lender to deliver the Closing Disclosure at least three business days before you sign.2eCFR. 12 CFR 1026.19 – Certain Mortgage and Variable-Rate Transactions This form lists your interest rate, monthly payment, loan terms, and a line called Cash to Close — the exact amount you need to bring on closing day.
Cash to Close combines your down payment with all remaining fees, then subtracts the earnest money already held in escrow and any seller credits you negotiated. Compare it line by line against the Loan Estimate you received when you first applied. If the interest rate, terms, or estimated monthly payment shifted, ask your lender to explain the change before you sign.
Paying on Closing Day
Once you know the Cash to Close figure, arrange a secure payment method. Title companies generally accept only two:
- Wire transfer. Contact the title company by phone, using a number you already have on file, to get verified wiring instructions. Initiate the transfer at your bank at least one to two business days before closing to allow processing time. Domestic wire fees typically run $25 to $30.
- Cashier’s check. Your bank freezes the funds and issues a guaranteed check made out to the settlement agent. The payee name must be exact; even a minor discrepancy can delay closing. Most banks require you to request one in person.
Personal checks are generally not accepted because they take days to clear. Wire fraud is a serious risk in real estate transactions, so never rely on wiring instructions received by email without verifying them through a phone number you already trust.
What the Closing-Day Payment Covers
Your Cash to Close isn’t just the down payment. It also funds prepaid costs, escrow deposits, title insurance, and government fees, all settled at the table.
Prepaid Interest and Escrow Deposits
Prepaid interest covers the daily interest on your mortgage from closing day through the end of that month. The lender calculates it by dividing your annual interest by 365 to get a daily rate, then multiplying by the days remaining in the month.3Consumer Financial Protection Bureau. What Are Prepaid Interest Charges? Closing early in the month means more prepaid interest; closing near month-end reduces it.
Your lender also typically requires an initial escrow deposit to cover future property taxes and homeowner’s insurance. Federal rules cap the escrow cushion at one-sixth of the total estimated annual disbursements.4eCFR. 12 CFR 1024.17 – Escrow Accounts In practice, expect to prepay two to three months of taxes and insurance at closing, plus a full year’s homeowner’s insurance premium if you haven’t already paid it separately.
Title Insurance
Two title policies are typically purchased at closing. Lender’s title insurance, almost always paid by the buyer, protects the lender’s interest against defects like undisclosed liens or ownership disputes.5Consumer Financial Protection Bureau. What Is Lender’s Title Insurance? Owner’s title insurance, which protects your own equity, is optional in most places but widely recommended. In many markets the seller pays for the owner’s policy, though this varies by local custom.
Recording Fees and Transfer Taxes
Recording fees, charged by the county to file the new deed and mortgage, typically range from around $30 to over $100 depending on the state and document length. Transfer taxes charged by the state or locality vary far more. Some states charge nothing, while others charge up to 2% or 3% of the sale price. Your Closing Disclosure shows the exact numbers for your jurisdiction.
How Closing Day Itself Works
On closing day, signatures are collected, funds are disbursed, and ownership transfers. Whether you sign in person or through a remote online notarization platform, the title agent or escrow officer confirms that your wired funds have arrived or takes possession of your cashier’s check.
Once the lender issues funding authorization and all documents are signed, the settlement agent distributes the money. The seller receives their proceeds, third-party vendors are paid for services like title searches and recording, and the government collects any transfer taxes and recording fees. The agent then submits the deed and mortgage to the local land records office. After funding is confirmed and the deed is recorded, you get the keys.
Ways to Reduce the Upfront Cash
If the closing-day figure feels heavy, you have two main levers to shift or reduce it.
Seller Concessions
You can negotiate for the seller to cover part of your closing costs, which lowers the Cash to Close on your Closing Disclosure. Each loan type sets a cap on the contribution:
- Conventional loans. With less than 10% down, the seller can contribute up to 3% of the sale price. With 10% to 25% down, the cap is 6%. With more than 25% down, it’s 9%.
- FHA loans. Seller contributions are capped at 6% of the sale price regardless of down payment size.
- VA loans. The VA doesn’t limit seller credits toward closing costs but caps broader seller concessions, like prepaid taxes or paying off the buyer’s debts, at 4% of the home’s appraised value.6Veterans Affairs. VA Funding Fee and Loan Closing Costs
If a seller contributes more than allowed, the excess typically reduces the sale price used to calculate your loan amount, dollar for dollar, rather than killing the deal.
No-Closing-Cost Mortgages
Some lenders cover your upfront fees in exchange for a higher interest rate, often 0.25% to 0.50% above what you’d otherwise pay. The costs aren’t eliminated; they’re spread across your monthly payments for the life of the loan. That can make sense if you plan to sell or refinance within a few years. If you plan to stay long-term, paying closing costs upfront and keeping the lower rate usually saves more over time.