Q&A / Buying a home
What are closing costs?
Short answer
Closing costs are the fees it takes to finish a home purchase. They mostly cover your loan, the title work, and setting up your taxes and insurance. They’re separate from your down payment. Buyers in Indiana typically pay around 2–4% of the price, and sellers pay their own set of costs, mostly out of their sale proceeds.
Is that the same as my down payment?
No. Your down payment goes toward the house itself. Closing costs pay for everything it takes to get the deal done. You need cash for both, so budget for both from the start.
What do buyers usually pay?
- Loan costs. The lender’s fees, the appraisal and your credit report.
- Title costs. The title company’s closing fee and the lender’s title policy, which protects the bank.
- Prepaids. Your first year of homeowner’s insurance, plus money to start your escrow account for future tax and insurance bills.
- Recording fees. The county’s charge to record your new deed and mortgage.
What do sellers usually pay?
Agent commissions, their share of the title company’s fees and the payoff of their current mortgage. In Hamilton County, the seller also generally pays for the owner’s title policy, which protects the buyer’s ownership. Like most closing costs, that’s negotiable.
In most deals, all of it comes out of the sale proceeds, so sellers rarely write a check at closing.
What’s different about Indiana?
Two things work in your favor here.
- There’s no transfer tax. Many states charge one when a home changes hands. Indiana doesn’t.
- Property taxes are paid a year behind. At closing, the seller gives the buyer a credit for the taxes that built up while the seller owned the home. When the tax bill shows up later, the buyer pays it with that credit.
That tax credit is one of the most confusing lines on the closing paperwork. Now you know why it’s there.
How do I find out my exact number?
Your lender gives you a Loan Estimate within three business days of applying. Then you get a Closing Disclosure with the final numbers at least three business days before closing.
Compare the two. If anything jumped, ask why.
Can I lower my closing costs?
Yes. Compare Loan Estimates from more than one lender. Ask the seller to cover part of your closing costs in your offer. And closing near the end of the month can cut how much interest you prepay at closing.
What I tell my clients
Read your Closing Disclosure the day it arrives. Questions are easy to fix three days out and stressful to fix at the table.
Words you’ll hear
- Prepaids
- Costs you pay ahead of time at closing, like your first year of homeowner’s insurance.
- Escrow account
- An account your lender uses to pay your property taxes and insurance for you, funded a little with each mortgage payment.
- Proration
- Splitting a cost, like property taxes, between buyer and seller based on how long each one owned the home.
- Closing Disclosure
- The final breakdown of your loan and closing costs, sent at least three business days before closing.
Have a question that isn’t here?
Send it to me. I’ll give you a straight answer, and if other people are wondering the same thing, it might become the next page in this Q&A.
This is general information to help you understand the process. It isn’t legal or financial advice. Your contract, your lender and your agent have the final word on your situation.