Closing Costs

In addition to the down payment, homebuyers must also consider closing costs. Closing costs are expenses incurred from third-party services to complete the real estate transaction. These services are used to process loan paperwork, ensure the title is transferrable, document the deed in government records and more.

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APA Howard, E. J. (2022, August 14). Closing Costs. Annuity.org. Retrieved August 19, 2022, from https://www.annuity.org/real-estate/buying/closing-on-your-home/costs/

MLA Howard, Ebony J. "Closing Costs." Annuity.org, 14 Aug 2022, https://www.annuity.org/real-estate/buying/closing-on-your-home/costs/.

Chicago Howard, Ebony J. "Closing Costs." Annuity.org. Last modified August 14, 2022. https://www.annuity.org/real-estate/buying/closing-on-your-home/costs/.

What Are Closing Costs?

Closing costs for buying a home include fees, points, and other charges required from third-party services to transfer ownership of a property or refinance for a new loan. Closing costs are paid in addition to the down payment and include a variety of property-related and loan-related fees, as well as other miscellaneous expenses that the buyer and seller both cover.

The total amount varies based on where you live and the size of your mortgage loan. Closing costs are typically paid on the day you sign your loan paperwork to finalize the home purchase.

Why Are Closing Costs Necessary?

Closing costs are necessary because they help cover the costs incurred by your lender while processing your loan, such as title insurance, inspections and home appraisal. While these types of expenses are required when securing a mortgage and preparing a property for transfer of ownership, you may be able to reduce your costs or even eliminate upfront payment by bundling them into your mortgage loan.

What Is a Closing Disclosure?

A Closing Disclosure is a five-page document from your lender that outlines the final details about your mortgage loan. It lays out the total loan amount and terms of the loan, including your interest rate, your projected monthly mortgage payment, how much you will pay in closing costs, and the amount held in your escrow.

It is legally required for you to receive a copy of the Closing Disclosure from your lender at least three days before your closing date. It’s important to review this document and compare it with your lender’s previous loan estimate to ensure the final terms, costs and information are accurate.

How Are Closing Costs Determined?

The closing costs are determined based on the terms of the home purchase contract made between the buyer and seller. Both the buyer and seller share closing costs; however, the buyer is typically responsible for paying most of the closing costs.

The buyer pays 3% to 4% of fees related to obtaining, financing and securing the loan. This includes the appraisal fee, home inspection services, credit report costs and loan origination fee.

The seller pays between 1% to 3% of the costs associated with preparing and transferring the home. This includes the real estate agent commission, prorated taxes and fees, title insurance, and seller concessions to make the deal go through in a buyer’s market.

Closing Costs: Buyer vs. Seller

What Are the Most Common Types of Closing Costs?

There are various costs associated with closing on a home. The most common types of closing costs to expect are as follows.

Types of Closing Costs
Home inspection fee
A fee to cover services that assess if there are any major issues with the home’s structure or internal systems. These fees typically range between $300 to $500.
Appraisal fee
Fees to pay for the property valuation report, which verifies what the home is worth. This fee is paid at the beginning of the loan application process and typically costs between $450 to $600.
Title insurance fee
Fees to cover the cost of title insurance, title search and examination, and documentation preparation to protect the lender and buyer from problems with ownership title of the property. The cost for this service ranges from 0.5% to 1% of the home’s purchase price.
Recording fee and transfer taxes
Recording fees are government-related fees that record the details of the real estate transaction in county records. Transfer taxes are the cost of transferring real estate from one owner or mortgage company to another.
Loan origination fee
Fees charged by the lender to cover the lender’s loan processing costs and underwriting of your loan. It typically costs 1% of the total mortgage.
Closing settlement or attorney fees
A fee paid to the escrow, title agent, or attorney who handles the closing of your loan. The settlement fee is $2 per every $1,000 in sales price, and the attorney fee ranges between $150 to $500.
Application fee
A fee charged by the lender to process your loan request. This fee ranges from $0 to $500.
Discount points and prepaid interest
The lender allows you to lower the interest rate on your loan by paying money upfront for discount points. One discount point equals 1% of your loan amount. Your lender may also require you to pay interest accrued on the loan between the closing date and your first mortgage payment date.

Each state has different requirements, so not all fees may apply to your unique situation. A loan officer can help you find out which costs are required in your region.

How Much Are Closing Costs on Average?

On average, closing costs typically range between 2% to 5% of the total home’s purchase price. So, for a $250,000 home, you could expect to pay $5,000 to $12,500 in closing costs. It depends on the buyer’s loan program, the location of the property, and the lender’s fees and costs required to service your mortgage.

Here is a breakdown of the average closing costs by state, with or without taxes at closing.

Average Closing Costs by State
StateAverage Total Closing Costs (With Taxes)Average Total Closing Costs (Without Taxes)
Alabama$2,986$2,623
Alaska$3,581$3,581
Arizona$4,701$4,701
Arkansas$3,115$2,281
California$7,953$5,665
Colorado$3,881$3,806
Connecticut$8,821$4,108
Delaware$17,859$3,888
Florida$8,554$4,498
Georgia$3,762$2,863
Hawaii$7,463$5,879
Idaho$4,082$4,082
Illinois$5,929$4,733
Indiana$2,200$2,200
Iowa$3,146$2,741
Kansas$2,793$2,793
Kentucky$2,802$2,546
Louisiana$3,711$3,386
Maine$4,420$2,546
Maryland$14,721$4,459
Massachusetts$7,964$4,904
Michigan$5,714$3,511
Minnesota$4,011$2,592
Mississippi$2,756$2,756
Missouri$2,061$2,061
Montana$3,337$3,337
Nebraska$2,781$2,210
Nevada$6,383$4,222
New Hampshire$8,183$2,804
New Jersey$7,915$4,158
New Mexico$3,513$3,513
New York$16,849$6,168
North Carolina$3,406$2,642
North Dakota$2,501$2,501
Ohio$4,223$3,346
Oklahoma$2,893$2,507
Oregon$4,327$3,862
Pennsylvania$10,634$4,221
Rhode Island$5,568$3,419
South Carolina$3,447$2,501
South Dakota$3,105$2,843
Tennessee$3,911$2,694
Texas$4,548$4,548
Utah$4,837$4,837
Vermont$7,906$3,500
Virginia$6,346$3,461
Washington$13,927$4,862
Washington, DC$29,888$6,502
West Virginia$3,406$2,465
Wisconsin$3,459$2,692
Wyoming$2,589$2,589
Source: ClosingCorp

How much you end up paying in closing costs also depends on your home’s price, your credit score, and whether you can get seller or lender concessions. You should go over the closing disclosure to ensure the terms of your loan and associated costs reflect the correct information leading into closing day.

How to Budget for Closing Costs

It is best to ensure you have enough money for both the closing costs and down payment well before buying a house. Since closing costs vary based on factors such as your lender fees, property location and miscellaneous other costs, a fine-tuned budget can help you better prepare financially.

Some ways you can budget for closing costs are to set aside a little extra cash from your paychecks each month. If you receive a bonus or tax refund, then you can also use that toward closing costs. Other tips to minimize your expenses include eating at home or cutting miscellaneous expenses like cable.

Tailor your savings to your meet your homeownership goals and timeline. The more you have saved, the more cushion you will have to cover closing costs.

What Can Homebuyers Do to Help Lower Closing Costs?

To help lower closing costs, homebuyers have the option to comparison shop for services rendered during the closing process, such as home inspection companies, home insurance, and title insurance.

The lender typically provides a recommended list of companies, but the buyer has the option to choose their own. The homebuyer can negotiate with the lender on loan origination fees, and the lender may be able to apply lender credits to help reduce some of the final closing cost balance.

Also, the buyer can negotiate with the lender on a mortgage that doesn’t have any closing costs. If the lender allows a “no-closing-costs mortgage,” then it will result in the lender raising the interest rate or bundling the closing costs into the total cost of the mortgage.

Another option would be to ask the seller to pay part of your share of the closing costs as a negotiation to seal the deal.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: August 14, 2022

3 Cited Research Articles

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  1. Closing Corp. (2022, Apr 21). Average Closing Costs for Purchase Mortgages Increased 13.4% in 2021, CoreLogic‘s Closing Corp Reports. Retrieved from https://www.closing.com/wp-content/uploads/2022/04/ClosingCorp_2021_Purchase_ClosingCostReport_FNL_4-21_DD.pdf
  2. Redfin. (2022). What Are Closing Costs? Retrieved from https://www.redfin.com/guides/faq/how-much-are-closing-costs?utm_source=google&utm_medium=ppc&utm_campaign=1032657&utm_term=aud-1529945864813:dsa-642767764779&utm_content=558845240348&adgid=129326390637&gclid=CjwKCAjwk_WVBhBZEiwAUHQCmaqq5KTsO-glMUdIqV8P6cDDiQ8SnBZsqEBne7tyWxu4fGCLUzDwOBoCJ5IQAvD_BwE
  3. Consumer Financial Protection Bureau. (2017, Sept 12). What Is a Closing Disclose? Retrieved from https://www.consumerfinance.gov/ask-cfpb/what-is-a-closing-disclosure-en-1983/#:~:text=A%20Closing%20Disclosure%20is%20a,your%20mortgage%20(closing%20costs)