What Are Closing Costs and How to Prepare

Closing costs are the fees you pay to finalize a mortgage — typically 2-5% of your loan amount, which is $5,000 to $12,500 on a $250,000 loan. The best way to prepare is to read your Loan Estimate line by line, set aside roughly 5% of the loan amount on top of your down payment, and ask early which fees can be negotiated, credited by the seller, or financed into the loan.

At Priority Home Mortgage, we walk buyers across Michigan through these numbers every day. Here is what the fees actually cover, who pays what, and where the savings hide.

What do closing costs include?

Closing costs cover the services that make the sale legitimate before you get the keys — the appraisal, the title work, the taxes, and the lender’s own work creating the loan. Here is a rundown of the common line items:

• Loan origination fee: What your lender charges to process and create your loan (typically 0.5-1% of the loan amount).
• Discount points: An optional fee paid at closing to “buy down” your interest rate. Each point costs 1% of your loan amount and lowers the rate for the life of the loan.
• Appraisal fee: Confirms the home’s value supports the loan (typically $550-$750).
• Credit report and verification fees: Pulling your credit and verifying employment, income, and assets ($100-$350).
• Title search and title insurance: The search proves the seller actually owns the home; the insurance protects you against defects in the title. Together typically $1,000-$2,000 in Michigan.
• Settlement fee: What the title company charges to run the closing itself ($300-$600).
• Prepaids and escrow: Property taxes and homeowners insurance collected up front to seed your escrow account ($1,500-$4,500, depending on your tax bill and premium).
• Recording fees: Registers the sale with the county ($100-$300).
• Transfer taxes: Michigan’s state and county transfer taxes, which in Michigan are customarily paid by the seller.

One more line item that catches buyers off guard: some real estate brokerages charge their own compliance or administration fee, typically $250-$450, on top of the commission. Ask your agent early whether theirs does. Your Loan Estimate breaks down every fee for your specific transaction.

Who pays closing costs?

Buyers typically cover most closing costs, but they are negotiable. Sellers can contribute through seller concessions — a credit toward your costs negotiated as part of the offer — and that lever gets stronger in a balanced market. Your real estate agent and our team can structure the ask within the limits each loan program sets for seller contributions.

How much should you budget?

Plan the number before the house hunt, not after the offer:

1. Start with your Loan Estimate: We provide this early in the process so the costs are visible from day one.
2. Save with a cushion: Aim for about 5% of your loan amount on top of your down payment. For a $300,000 loan, that means setting aside roughly $15,000 for closing.
3. Check assistance programs: Michigan’s MSHDA offers help for eligible buyers — see our down payment assistance page — and FHA loans keep upfront costs lower.
4. Compare Loan Estimates: Fees vary between lenders. Put two estimates side by side and the differences jump out.

How can you bring closing costs down?

Not every line on the estimate is fixed. Ways to lower what you bring to the table:

• Negotiate fees: Ask about lowering or waiving the origination fee, and question any fee you do not understand.
• Ask for credits: Sellers can concede costs, and lender credits can trade a slightly higher rate for lower cash at closing.
• Finance them: On many programs you can roll some closing costs into the loan itself, trading cash today for a slightly larger balance.
• Time your closing: Closing at the end of the month reduces the prepaid interest you owe at the table.
• Shop title services: Some of the title-related fees are shoppable — your Loan Estimate marks which ones.

Why planning ahead matters

Closing costs are the difference between an offer you can make confidently and a scramble in the final week. Knowing the number early keeps you from dipping into moving-day savings, lets you decide deliberately between paying costs in cash, financing them, or negotiating them to the seller — and means the Closing Disclosure you sign holds no surprises.

Disclaimer: Information provided is for educational purposes. Consult a mortgage professional for personalized advice.