What are closing costs?

Closing costs are the expenses that a buyer of a property incurs in addition to the price of the property. Closing costs are also referred to as settlement costs. Closing costs include loan origination fees, appraisal fees, title insurance and taxes.

Closing costs are divided into two categories: nonrecurring and prepaid costs. Nonrecurring closing costs are paid once at the time of the purchase and can be associated with obtaining a loan. Prepaid costs recur over time. This includes property taxes and homeowners' insurance. Closing costs are due at the time the buyer signs the documents to finalize the purchase of property.