What First-Time Buyers Get Wrong About Closing Costs

When buying your first home, don’t forget to budget for closing costs—fees for processing your purchase, including lender charges, title insurance, and taxes. These costs range from 2% to 5% of the home price. To reduce costs, negotiate with your lender, ask for seller credits, and shop around for services. Always request a Loan Estimate early and compare it to the final Closing Disclosure to avoid surprises when you pay closing costs.

First off—what even are closing costs?

When you’re about to officially own a property, there’s paperwork to be processed, people need to get paid, and the bank has their hand out too. That’s what you’re paying for. If you’re buying a place, you’re not just paying closing costs—you’re giving money to the lender, appraiser, title company, government, maybe even the HOA, and a few more folks with their hands out. On average? You’re looking at around 2% to 5% of the home’s price. So, yeah. If you’re buying a $300,000 home, that’s another $6,000 to $15,000 out of pocket on top of your down payment.

Let’s get real—here’s where most first-time buyers screw it up

• They ignore the closing costs when budgeting – They budget for the down payment, moving trucks, and furniture but leave out the thousands they’ll need to close. That’s a punch in the wallet.
• They think sellers will just cover it – Can it happen? Yes. But in a hot market, forget it. It’s not the norm.
• They confuse prepaid costs with closing costs – No, your escrow money for taxes and insurance isn’t the same. And yep, you’re paying that too.
• They don’t shop lenders – One lender says $8K in fees. Another says $6K. You wouldn’t buy a car without comparing prices, right?
• They miss negotiation opportunities – Some of these fees? They’re negotiable. But not if you don’t ask.

Here’s what’s actually included when you pay closing costs

You’re not paying fluff charges. You’re basically paying everyone involved in checking that the sale is legal, lending you money, and transferring ownership.

Can I reduce what I pay in closing costs?

Yeah, and here’s how I’ve helped clients keep more cash in their pocket:

• Negotiate with the lender – Ask if discount points are worth it or what fees they can waive. Won’t hurt to push.
• Ask for seller credits – If it’s a buyer’s market, sellers may sweeten the deal by covering some costs.
• Use a local real estate pro – They know what can be knocked off and who’s more flexible in your area.
• Shop around for services – You can choose your own title company or home inspector. Sometimes that alone saves you hundreds.

I recently worked with a first-time buyer who brought $4,000 less to the table just by negotiating services and shopping her lender more aggressively. Use the tools in your hands—you don’t need to walk in blind. Our reAlpha blog has more ways to save during the buying process.

What does “pay closing costs” mean in the real world?

It means you’re not just buying a home, you’re buying into a system with fees tagged onto the back. The mistake is thinking it’s just the price tag in the Zillow listing. I had someone say, “I found a house at $250K, and I’ve got $260K to my name, so I’m good to go…” Not really, because once we added lender fees, taxes, insurance preload, and title charges, his all-in number was closer to $265K. He had to pivot fast. Don’t let that be you.

Still not sure how much you’ll need? Don’t guess.

Rough estimates don’t cut it when you’re at the closing table. You want numbers. Real ones. Ask your lender for a Loan Estimate early. That’s the sheet that lays out all your expected closing costs. Then compare that to what your final Closing Disclosure says a few days before signing. Any shady additions or changes? Call it out. Transparency protects your wallet.