Closing costs
The down payment is the number people save for; the closing costs are the number that surprises them. This itemises both sides of a settlement statement — what the buyer brings to the table and what the seller walks away with — and shows the round-trip cost that any property has to clear before it is an investment.
| Line | Amount | Note |
|---|---|---|
| Purchase price | $420,000 | the number everything else is a fraction of |
| Down payment | $84,000 | 20% of price |
| Loan amount | $336,000 | price less the down payment |
| Discount points | $3,360 | 1.00% of the loan, prepaid interest |
| Lender fees | $1,200 | origination, underwriting, processing |
| Appraisal | $650.00 | required by the lender |
| Title insurance | $2,100 | 0.50% of price |
| Title and escrow services | $900.00 | settlement and search |
| Recording | $150.00 | county filing |
| Prepaid interest | $897.53 | 15 days at 6.50% |
| Escrow deposits | $1,000 | 2 months of tax and insurance |
| Total buyer costs | $10,258 | everything above except the down payment |
| Cash to close | $94,258 | down payment plus costs |
| Commission | $25,200 | 6.00% of price, seller side |
| Transfer tax | $420.00 | 0.100% of price |
| Concessions and repairs | $4,200 | 1.00% of price |
| Seller costs | $30,870 | including half the title cost |
| Seller net | $53,130 | price less costs and the loan payoff |
Prepaid interest and escrow deposits are not fees — they are money set aside for bills you would pay anyway. Points are a fee, and buying them is a bet that you stay long enough for the lower rate to repay the cost.
points = loan × points% · One point is 1% of the loan, not of the price.
loan × rate × days / 365 · From closing to the end of the month.
(tax + insurance)/12 × months · Cushion required by the servicer.
down + Σ buyer costs · The number on the wire instruction.
A clear path from inputs to results.
The down payment is the number people save for; the closing costs are the number that surprises them. This itemises both sides of a settlement statement — what the buyer brings to the table and what the seller walks away with — and shows the round-trip cost a property has to clear before it is an investment.
How to use
- Enter the purchase price and the down payment.
- Add the lender costs: points, origination, appraisal and recording.
- Add the third-party costs: title insurance, escrow and settlement.
- Set the prepaids: days of interest and months of tax and insurance escrow.
- Read cash to close, seller costs and the round-trip friction.
The formula
Reference: The Loan Estimate and Closing Disclosure forms required by the TILA-RESPA integrated disclosure rule (12 CFR §1026.19) define the line items.
Worked example
$420,000 purchase, 20% down, one point
- Price $420,000, 20% down, 6.5% note rate.
- One discount point, $1,200 lender fees, $650 appraisal.
- Title insurance 0.5%, $900 escrow services, $150 recording.
- 15 days of prepaid interest, 2 months of escrow on $1,600 insurance and $4,400 tax.
- 1
The down payment is $84,000 and the loan is $336,000.
- 2
One point on the loan is $3,360 — not 1% of the price, which would be $4,200.
- 3
Title insurance at 0.5% of price is $2,100.
- 4
Prepaid interest for 15 days at 6.5% on $336,000 is $898.
- 5
Two months of escrow on tax and insurance is $1,000.
- 6
The buyer's closing costs total $10,258, so cash to close is $94,258.
- 7
On the seller side, 6% commission, 0.1% transfer tax and 1% concessions come to $30,870, leaving $53,130 after the $336,000 payoff.
- 8
Buyer and seller friction together is 9.79% of the price.
$94,258 cash to close · $10,258 buyer costs · 9.79% round-trip friction.
Interpreting the result
Two numbers matter. Cash to close is what you need in the account on the day; round-trip friction is what the property has to appreciate by before selling breaks even. At 9.79%, a house bought and sold within a year needs a decade of typical appreciation to avoid a loss — which is the real argument against short holds.
Assumptions & limitations
- Points are charged on the loan amount, title insurance on the price.
- Prepaid interest runs from closing to the end of the month, on a 365-day basis.
- Escrow deposits are the servicer's cushion, typically two months of tax and insurance.
- Seller costs include commission, transfer tax, concessions and half the title cost.
- Recording, transfer-tax rates and title practices vary by state and are entered as inputs rather than looked up.
- Prepaids and escrow are money set aside for bills you would pay anyway; they are not fees.
Frequently asked questions
Are closing costs tax deductible?
Some are. Points and mortgage interest are deductible on a purchase loan, and property tax is deductible subject to the SALT cap. Title insurance, appraisal and recording fees are added to the cost basis instead, which reduces the capital gain when you sell.
Are points worth buying?
Only if you stay past the break-even month, which is the cost divided by the monthly saving. One point typically buys about 0.25% off the rate, so on a $336,000 loan the $3,360 cost takes roughly five to six years to repay.
Can I roll closing costs into the loan?
Sometimes, if the appraisal supports a higher loan amount. It raises the loan-to-value ratio, may trigger mortgage insurance, and you pay interest on the costs for thirty years — which is usually worse than paying them up front.
Who pays closing costs?
Both sides. The buyer pays lender and title costs plus prepaids; the seller pays commission, transfer tax and often some of the buyer's costs as a concession. In a slow market, concessions move several thousand dollars from buyer to seller.
Why is my cash to close higher than the Loan Estimate?
Usually escrow deposits and prepaid interest, which depend on the closing date. A closing late in the month carries almost no prepaid interest but a full month of it early in the month, and the escrow cushion is set by the servicer.
Methodology last reviewed 2026-10-21. Results are informational and not financial or engineering advice — see our disclaimer.