How to budget for closing costs on a home purchase

Written by Samantha SheltonNMLS 1647301Updated October 2026

Couple calculating how to budget for closing costs at their kitchen table with savings jar and notepad

Budget 2% – 5% of the home’s purchase price for closing costs. On a $300,000 home that’s $6,000 – $15,000, due on top of your down payment rather than carved out of it. Closing costs bundle lender charges, the appraisal, title services, recording fees and transfer taxes, plus prepaid property taxes and insurance.

You don’t have to guess for long. Your Loan Estimate arrives within three business days of applying and itemizes every charge; your Closing Disclosure lands at least three business days before you sign with the final numbers. Between those two documents, federal rules cap how far most charges are allowed to move.

Learn how to budget for closing costs, including what’s inside them, how much to set aside at three price points, and how much of the bill a seller can legally cover.

Key takeaways:

Budget 2% – 5% of the purchase price: On a $300,000 home that’s $6,000 – $15,000 in closing costs, and it lands on top of your down payment rather than inside it.
Two documents replace the guesswork: Your Loan Estimate is due within 3 business days of applying and your Closing Disclosure at least 3 business days before you sign, so nothing at the table should be a surprise.
A large share of the bill is negotiable: Shopping the closing services you’re allowed to choose can save hundreds of dollars, and on a conventional loan a seller can contribute 3% – 9% of the price toward your closing costs depending on your down payment.

What are closing costs?

Closing costs are the one-time charges you pay to originate your loan and legally transfer the property, typically 2% – 5% of the purchase price, paid at the table rather than financed into your payment. They exist because a dozen parties touch the transaction: a lender underwrites the file, an appraiser values the home, a title company insures the chain of ownership, and a county office records the deed and mortgage.

The distinction that trips up most buyers is between closing costs and cash to close. Closing costs are the fees. Cash to close is the whole check: down payment, plus closing costs, plus prepaids, minus earnest money and any seller or lender credits. Budget for the second number, that’s the one the title company asks you to wire. Our Home Buying guide sets the full sequence, and closing costs: what to expect as a buyer covers who customarily pays what.

What’s included in closing costs?

Closing costs break into four groups, and the group a charge falls into decides who sets the price and whether it can legally change before you sign.

Cost group	What’s in it	Typical range on a $300,000 purchase	Can it change after your Loan Estimate?
Lender fees	Origination, underwriting and processing charges, discount points, credit report	$1,000 – $3,500	No. Lender, broker and affiliate charges for a required service can’t increase
Services you can’t shop for	Appraisal, flood certification, lender-required inspections	$600 – $1,200	No. Required services from providers you didn’t choose can’t increase
Services you can shop for	Title search, lender’s title insurance, settlement or closing agent, survey	$1,200 – $2,800	Capped at 10% cumulative if you pick from the lender’s written list; uncapped off-list
Government charges and prepaids	Recording fees, transfer taxes, prepaid interest, homeowners insurance, escrow deposits	$1,700 – $4,700	Mixed. Transfer taxes can’t increase, recording fees cap at 10%, prepaids and escrow deposits can move freely

Prepaids surprise buyers most, because they aren’t fees at all, they’re your own future expenses, collected up front: a year of homeowners insurance, a few months of property taxes to seed your escrow account, and interest covering the days between closing and your first payment. Federal rules cap the escrow cushion at one-sixth of estimated annual disbursements, roughly two months’ worth. The role of escrow in home buying and mortgage closing costs go deeper, and the home appraisal process covers the fee you often pay before closing day.

How much should you budget for closing costs?

Multiply your target purchase price by 2% and by 5% for your floor and ceiling, then plan around 3.5% as a working number. Here’s what that looks like at three common price points.

Purchase price	At 2% (lean)	At 3.5% (plan-for)	At 5% (heavy)
$200,000	$4,000	$7,000	$10,000
$300,000	$6,000	$10,500	$15,000
$400,000	$8,000	$14,000	$20,000

Now stack the down payment on top. On a $300,000 home with 3% down through a conventional 97% loan-to-value program, you’d bring roughly $9,000 down plus about $10,500 in closing costs, $19,500 in cash to close, less earnest money already deposited.¹ Buyers who budget only the down payment find this gap late, usually the week the appraisal lands.

A high-transfer-tax locality and discount points push you toward the high end; a modest loan amount and a late-month closing pull you low. Read how to spot hidden costs in a home purchase before you set your ceiling, and budgeting for your first home if this is your first transaction.

Which closing costs can change before you sign?

Most of them can’t, the most useful thing to know about this process. Once your lender issues a Loan Estimate, federal disclosure rules sort every charge into one of three buckets and hold the lender to its own numbers.

Zero tolerance. Cannot increase at all: Fees paid to the lender, broker, or an affiliate of either for a required service; transfer taxes; and fees for required services from providers you weren’t allowed to shop for.
10% cumulative tolerance: Recording fees, and required services where you chose a provider from the lender’s written list. These can rise, but only by 10% in total across the category.
No limit: Prepaid interest, property insurance premiums, and initial escrow deposits, plus any service you shopped using a provider who wasn’t on the lender’s list.

Those limits lift only on a documented change in circumstances, you switch programs, change your down payment, or the appraisal comes in low. Without one, costs above the allowed limits entitle you to a refund of the excess, so compare the two documents line by line.

The CFPB’s Loan Estimate explainer walks through the form, and its guide to how to read your Closing Disclosure shows where to compare. One caution: none of these protections attach to a prequalification or an informal fee worksheet. Knowing what mortgage pre-qualification gives you, and the stronger commitment behind the importance of mortgage preapproval. Keeps you from budgeting off a number nobody is bound to.

How much can a seller pay toward your closing costs?

Between 3% and 9% of the price, depending on your loan program and down payment. Seller concessions, formally, interested party contributions, are negotiated into your offer, every program caps them, and none can go toward your down payment.

Conventional loans

Fannie Mae caps contributions on a principal residence at 3% above 90% loan-to-value, 6% at 75.01% – 90%, and 9% at 75% or less, figured on the lower of sales price or appraised value. They can cover closing costs, prepaids, and up to 12 months of HOA assessments, never your down payment, reserves, or minimum borrower contribution. The smaller your down payment, the less a seller is allowed to give you.

FHA loans

FHA caps contributions at 6% of the sales price; anything above is an inducement to purchase, subtracted from the price before the loan-to-value ratio is figured, which shrinks your loan. Budget separately for the 1.75% upfront mortgage insurance premium, usually financed rather than paid at the table. Minimum down payment is 3.5% at a 580 credit score.²

VA loans

VA caps seller concessions at 4% of reasonable value, but counts only prepaids, above-market points, gifts, temporary buydowns, and payoff of the buyer’s credit balances or judgments. A seller paying customary costs like the title policy or appraisal doesn’t count against it. VA also limits the lender to a flat charge of no more than 1% of the loan amount in lieu of all other origination costs. The funding fee runs 2.15% on a first-use purchase under 5% down, can be financed, and is waived for borrowers drawing compensation for a service-connected disability.³

USDA loans

USDA caps contributions at 6% of the sales price and charges a 1% upfront guarantee fee that may be financed. It also does something no other program does: when the appraisal exceeds the sales price, eligible closing costs can be financed up to 100% of appraised value. Because Align is a broker, we place USDA loans many retail banks don’t offer.

How can you lower your closing costs?

Six moves reliably save money. The first is the one buyers skip.

Shop the services you’re allowed to choose: Section C of page 2 of your Loan Estimate flags them, and your lender must hand you a written list of providers. The CFPB says borrowers who shop around for closing services may save hundreds of dollars, start with how to choose a title company.
Compare Loan Estimates from more than one lender: Origination charges vary widely on identical files, and the form exists so you can lay two side by side. The highest-leverage hour in the process.
Negotiate seller concessions into the offer: Ask for a credit in the purchase agreement, not after inspection, see how to negotiate house prices.
Trade rate for cash with lender credits: A lender credit cuts upfront costs in exchange for a slightly higher rate, the mirror image of discount points. It fits when you’re cash-constrained or expect to move soon.
Close later in the month: You pay per-diem interest only from disbursement through month’s end, so signing on the 28th costs a few days of prepaid interest instead of nearly a month’s worth.
Check what you already qualify for: First-time home buyer grants and programs frequently include closing cost assistance.

Build the fund before you start shopping

Set your closing cost target the same month you set your down payment target. Twelve months out on a $300,000 purchase with 3% down, that’s roughly $19,500 in cash to close, or about $1,625 a month. Our guide to how to save for a down payment covers where to park money you need on a fixed date, and preparing to buy sequences the rest.

Three sources beyond savings help. Gift funds from a relative or documented familial relationship can cover closing costs with a signed gift letter and proof the donor had the money. A 401(k) participant loan is capped at the lesser of $50,000 or 50% of your vested balance, with the usual five-year repayment window extended when the loan buys a primary residence. And the IRS lets a qualified first-time homebuyer pull up to $10,000 from an IRA without the 10% additional tax on early distributions, a lifetime limit, usable within 120 days.⁴

What Michigan buyers should know

Michigan is friendlier to buyers than most states, mainly because the largest government charge falls on the seller. Four specifics change your budget.

Transfer tax is the seller’s bill: Michigan charges $3.75 per $500 of value in state transfer tax plus $0.55 per $500 in county transfer tax, $8.60 per $1,000 combined, or $2,580 on a $300,000 sale. State law places liability on the seller, so this typically isn’t a line you fund.
Recording fees are flat, not per page: Michigan registers of deeds charge $30 per document regardless of page count. A purchase usually records a deed and a mortgage, so budget roughly $60 instead of the several hundred dollars per-page states charge.
Property taxes bill twice a year: Summer taxes become a lien July 1 and are due September 14; winter taxes become a lien December 1 and are due February 14. Your proration credit or charge depends on which side of those dates you sign.
MSHDA can cover the cash: The MI 10K DPA Loan provides up to $10,000 toward down payment, closing costs, and prepaids as a 0% interest, non-amortizing second mortgage, repaid when you sell, refinance, pay off the first mortgage or stop living in the home. It pairs with a MSHDA MI Home Loan first mortgage and requires a 640 credit score and homebuyer education.

Align Lending places MSHDA loans regularly, ask whether the 10K DPA fits your file, and see first-time home buyer programs for what else stacks with it.

How Align helps you get ready

There is no such thing as calling too early. Samantha would rather see your numbers months before you shop than the week you find a house, because that is when there is still time to fix what matters.

When you are ready, one application goes to multiple wholesale lenders. A 2024 Polygon Research analysis of federal mortgage data found broker borrowers paid about $10,662 less over the life of a $400,000 loan than borrowers at nonbank retail lenders.

Take a mortgage readiness review

Sources: Polygon Research, Loan Costs Channel Study 2024 (2023 federal HMDA data, 30-year fixed purchase loans; commissioned by United Wholesale Mortgage and Willow Canyon Advisors).

FAQ: Budgeting for closing costs

Here are answers to common questions about budgeting for closing costs.

How much are closing costs on a $300,000 house?

Plan on $6,000 to $15,000, based on the standard 2% to 5% range. Where you land depends on your state’s transfer taxes and recording fees, your lender’s origination charges, whether you buy discount points, and prepaid items like property taxes and homeowners insurance escrows. Your Loan Estimate, provided within three business days of applying, replaces this rule of thumb with your actual itemized numbers. Our breakdown of mortgage closing costs explained walks through a sample statement line by line.

What is included in closing costs?

Closing costs include lender charges (origination, underwriting, points), third-party fees (appraisal, credit report, title search and title insurance, survey), government charges (recording fees, transfer taxes), and prepaid items (homeowners insurance, property tax escrows, prepaid interest). Prepaids often surprise buyers because they are not fees at all. They are your own future expenses collected up front to fund your escrow account. Title charges are usually the largest shoppable group, and title insurance: why it’s important explains what the lender’s and owner’s policies each cover.

Can closing costs be rolled into the mortgage?

On a purchase, usually not directly. Your loan is capped by the home’s value and program limits. But you can achieve a similar effect through lender credits, where you accept a slightly higher interest rate in exchange for reduced upfront costs, or through seller concessions negotiated in your offer. Refinances are different: closing costs can often be financed into the new loan balance. See seller-paid closing costs for how to structure the ask in a purchase agreement.

How can I lower my closing costs?

Shop services you are allowed to choose, like title insurance and settlement agents, which your Loan Estimate flags as shoppable. Negotiate seller concessions, especially in balanced or buyer-friendly markets. Compare Loan Estimates from multiple lenders, since origination fees vary widely. Ask about lender credits, close later in the month to trim prepaid interest, and check for first-time buyer assistance programs covering closing costs. Walking through how to prepare for a home closing will also show you which numbers to verify before wire day.

The bottom line on budgeting for closing costs

Budget 2% – 5% of the purchase price for closing costs, $6,000 – $15,000 on a $300,000 home, and treat it as money due on top of your down payment, not inside it. Plan around 3.5% until your Loan Estimate arrives within three business days of applying and replaces the rule of thumb with real numbers. From there the leverage sits in three places: shop the services marked shoppable, compare origination charges across lenders, and negotiate a seller credit inside your program’s limits. Then check the Closing Disclosure against the Loan Estimate before you sign.

If you’re ready to see what your closing costs actually look like, talk to Align Lending. We’ll shop your scenario across our lender network and put competing Loan Estimates side by side so you can see exactly which fees differ. Call 248-506-5727 or start online today.

Footnotes:

1. Example figures are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. The dollar ranges shown for fee categories reflect observations across Align Lending’s wholesale lender network and will not match every transaction. Your actual closing costs, cash to close, and loan terms depend on your application, the property, your loan program, your locality, and market conditions. Return to text.

2. Align Lending is not acting on behalf of or at the direction of FHA or HUD. FHA interested party contribution limits, mortgage insurance premium rates, and minimum down payment and credit score requirements are set by HUD and are subject to change. Return to text.

3. Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency. VA seller concession limits, the lender flat charge limit, and funding fee rates and exemptions are set by the Department of Veterans Affairs and are subject to change. Return to text.

4. This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Retirement account loans and withdrawals carry tax consequences, repayment obligations, and long-term costs that vary by plan and by individual circumstance. Consult a qualified tax professional about your situation before taking funds from a 401(k) or IRA to buy a home. Return to text.

Sources: closing costs of 2% – 5% of the purchase price and the $6,000 – $15,000 figure on a $300,000 home, Freddie Mac. Loan Estimate and Closing Disclosure timing, the zero-tolerance, 10% cumulative and no-limit fee categories, changed-circumstance exceptions, refunds of excess charges, and the written list of service providers, Consumer Financial Protection Bureau (Regulation Z, 12 CFR 1026.19); potential savings of hundreds of dollars from shopping for closing services, Consumer Financial Protection Bureau, Your Home Loan Toolkit. Escrow cushion capped at one-sixth of estimated annual disbursements, RESPA, 12 CFR 1024.17. Interested party contribution limits of 3%/6%/9% by loan-to-value and their exclusion from down payment, reserves and minimum borrower contribution, Fannie Mae Selling Guide B3-4.1-02; 97% loan-to-value option, Fannie Mae; gift fund requirements, Selling Guide B3-4.3-04. FHA 6% contribution limit, inducement-to-purchase treatment, 1.75% upfront mortgage insurance premium, and 3.5% minimum down payment at a 580 credit score, HUD Handbook 4000.1. VA 4% seller concession limit, 1% lender flat charge, and funding fee rates and exemptions, U.S. Department of Veterans Affairs. USDA 6% contribution limit, 1% upfront guarantee fee, and financing of eligible closing costs to 100% of appraised value, USDA Rural Development Handbook HB-1-3555. 401(k) loan limit and primary-residence repayment exception and the $10,000 lifetime IRA first-time homebuyer exception, Internal Revenue Service (IRC §§ 72(p) and 72(t); Publication 590-B). Michigan transfer tax rates and seller liability, MCL 207.504, 207.523 and 207.525; $30 flat recording fee, MCL 600.2567; summer and winter tax lien and due dates, Michigan Department of Treasury. MI 10K DPA Loan terms and eligibility, Michigan State Housing Development Authority. Fee-category dollar ranges, Align Lending broker-network observations.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Closing cost amounts, fee tolerances, program limits, and assistance program terms vary by lender, loan program, locality, and transaction, and are subject to change. Consult a qualified professional about your situation. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.