What Should I Expect in Closing Costs When Buying a Home With Financing?
Sankari Subburaman June 3, 2026
Sankari Subburaman June 3, 2026
Buying a home involves more than just the purchase price. Most buyers focus on their down payment and future mortgage payments, but there is another expense that often catches people by surprise: closing costs. As a realtor in Seattle, one of the most common questions I hear from buyers is how much they should set aside beyond their down payment.
The answer depends on the property, financing terms, and several transaction-related expenses. However, a good rule of thumb is to budget approximately 1% of the home's purchase price. For example, if you're purchasing a $1 million home, you should expect closing costs to be around $10,000.
In this blog, I will explain what closing costs include, why they matter, and how you can prepare for them before reaching the final stages of your home purchase.
Closing costs are the expenses paid when ownership of a property officially transfers from the seller to the buyer. These costs are separate from your down payment and monthly mortgage obligations.
Many buyers assume that closing costs are simply administrative fees. In reality, they cover a combination of services, taxes, prepaid expenses, and financial reserves required to complete the transaction and secure your loan.
Whether you're purchasing a home in Seattle, Bothell, Kirkland, or Redmond, understanding these costs ahead of time can help you avoid unexpected financial stress during closing.
When financing a home purchase, your lender performs several services before approving your mortgage. These services come with associated costs that are typically included in your closing expenses.
Some common lender-related charges include:
Loan origination fees
Appraisal fees
Credit report fees
Underwriting costs
These fees allow the lender to evaluate the property, verify financial information, and process your mortgage application. While the exact amount varies by lender and loan program, these expenses are a standard part of most financed home purchases.
Another significant portion of closing costs involves title and escrow services.
Title companies help verify that the property's ownership history is clear and free from unresolved claims or legal issues. Escrow companies manage funds and documents throughout the transaction to ensure all parties meet their obligations before the sale is finalized.
Title insurance is often included as part of these costs. Although it may seem like another fee, it provides valuable protection by helping safeguard your ownership rights after closing.
These services are essential to completing a secure real estate transaction and should be viewed as part of the overall value you receive during the purchase process.
Every real estate transaction requires official documentation to be recorded with local government agencies.
These expenses generally include:
Recording fees
Transfer-related taxes where applicable
Administrative filing costs
The exact amount varies depending on the property's location and local regulations. While these costs are not always substantial compared to the overall purchase price, they remain an important component of your closing budget.
One area that often creates confusion is prepaid items.
These costs are collected during closing to cover expenses that will become due shortly after you take ownership of the property. Instead of paying them separately later, they are collected upfront.
Prepaid items commonly include property taxes, homeowners insurance premiums, HOA dues when applicable, and mortgage interest accrued before your first scheduled payment.
For example, if you receive the keys several weeks before your first mortgage payment is due, prepaid interest helps cover that gap period.
Although these amounts increase the funds required at closing, they are not extra charges. They are simply payments you would be making anyway as a homeowner.
Many mortgage lenders require borrowers to maintain reserve accounts, often called escrow reserves.
These funds are collected and held by the lender to help pay future obligations such as property taxes and homeowners insurance. By setting aside these funds in advance, the lender can ensure that important expenses are paid on time throughout the year.
For buyers, this can simplify budgeting because certain housing-related expenses are managed through the mortgage payment rather than being paid separately.
One of the biggest misconceptions about closing costs is that every dollar represents a fee that disappears after the transaction.
That is not always the case.
Some closing costs pay for services that directly protect your investment. Others cover taxes that would eventually be due regardless of the transaction timing. Certain prepaid amounts fund future expenses, and in some situations, portions of these funds may be adjusted or refunded later.
Understanding this distinction helps buyers view closing costs more accurately and avoid feeling overwhelmed by the total figure presented on the settlement statement.
When purchasing a home with financing, I generally recommend planning for closing costs equal to about 1% of the home's purchase price. Having this amount set aside can help ensure a smoother transaction and eliminate last-minute surprises.
Whether you're buying your first property or upgrading to a new home in Seattle, Bothell, Kirkland, or Redmond, knowing what these expenses cover allows you to move forward with greater confidence. If you're looking for guidance from experienced real estate agents in Redmond WA, Sankari Realty can help you understand every step of the home-buying process, including the financial details that matter most before closing.
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