How much are closing costs for a home (and who pays for them)?

When you finance a house With a mortgage, your down payment isn’t the only amount of money you need to put down upfront. You’ll also have to pay closing costs, including loan and attorney fees, and other expenses.

If you’re a first-time home buyer, knowing how to get a loan isn’t enough to prepare you for closing costs, which can be confusing and overwhelming. Here’s what you need to know about closing costs, including how much they cost and who pays them.

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What are closing costs?

Closing costs refer to the various fees that come with buying a home. These can include loan application and origination fees, as well as home appraisal and inspection fees. You will also likely have to pay title and attorney fees and a few months of property taxes and home insurance up front. Your lender will give you an estimate of your closing costs before finalizing the loan.

Homebuyers are responsible for many of these closing costs, but sellers must cover some of them as well. It may be possible to negotiate for the seller to cover a larger proportion of the closing costs, although this is less common in a competitive market.

How much are closing costs?

Closing costs typically range from 3% to 6% of your total mortgage amount. For example, if you borrow a $300,000 mortgage, you can expect to pay between $9,000 and $18,000 in closing costs.

According to ClosingCorp, a provider of residential real estate closing cost data, these states (and Washington, DC) had the highest and lowest average closing costs in 2021. Note that taxes are included.

Top 5 States With The Highest Closing Costs (2021)

Top 5 States With Lowest Closing Costs (2021)

Taxes can make a big difference in these estimates. In Washington, DC, for example, the average closing cost without taxes is just $6,502, more than $23,000 less than the average cost with taxes included.

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What is included in closing costs?

Here are some of the most common mortgage closing costs that come with buying a home.

Registration fees

Some lenders charge borrowers a fee to process their loan application. These fees vary but can be $500 or less. It may include a credit report fee to check your credit score, which is usually around $25.

Assembly costs

Lenders also often charge a fee for preparing documents or working with a notary or attorney. A loan origination fee could cost around 1% of your mortgage amount. So if you borrow $200,000, you can expect to pay an origination fee of $2,000.

Interest paid in advance

Some lenders require you to prepay interest up front to cover fees that accrue between closing and your first monthly mortgage payment. The amount will depend on your interest rate and loan amount.

Points Reduction Rate

If you want to reduce your interest rate, you may be able to pay discount points upfront. Lowering your rate by one point will usually cost you 1% of your loan amount. This means that if you borrow $200,000, it would cost $2,000 to lower your rate by 1%. Whether or not buying Rebate Points is worth it is one of the questions to ask your lender.

Mortgage insurance

If your down payment is less than 20% on a conventional loan, you will need to pay for private mortgage insurance (PMI). PMI is a monthly charge, but you may need to cover the first month’s mortgage insurance premium when you close. Expect to pay around $30-70 per month for every $100,000 you borrow.

USDA, VA, and FHA Loan Fees

Government-sponsored loans can help you buy a home with little (or no) down payment. However, each loan program comes with guarantees or financing fees that you will have to pay at closing.

For a USDA loan, your finance charge will be 1% of your loan amount. Financing fees for VA loans range from 1.4% to 3.6%, depending on the amount of your down payment and if this is your first time using a VA loan. Finally, FHA loans come with a finance charge of 1.75%.

Assessment fees

Before you can close on a home, your lender must send a professional appraiser to determine the value of the property. If the value is less than the agreed purchase price of the home, you will have to renegotiate or cover the difference. Assessment fees vary, but can cost between $300 and $600.

Lawyer’s fees

Some states require you to hire an attorney to close a home. Your lawyer will be present at the closing and will coordinate the documents you need for the transfer of title. Fees vary depending on where you live and the number of hours the real estate attorney works for you, but generally ranges from $500 to $1,500.

Title search fees

Although costs vary, you can also expect to pay between $200 and $400 for a title search, which ensures that the seller truly owns their home and has no liens, bankruptcies or unpaid tax arrears preventing the sale. . The title search can be done by your real estate attorney or a title insurance company.

home insurance

Many lenders require you to purchase homeowners insurance before closing. This insurance protects the property in the event of damage or vandalism. You often have to prepay a year’s worth of insurance premiums, which you can estimate at $35 per month for every $100,000 of home value. So if your home is valued at $300,000, you’ll pay about $1,260 at closing, which will go into an escrow fund.

Property taxes

You may have to pay between two months and a full year of property taxes up front. The cost will vary depending on your location and the value of your home. You can usually find historical property tax information on a real estate listing site.

According to a 2022 analysis by WalletHub based on US Census Bureau data, the average American pays $2,471 in property taxes each year. If you were to cover two months of property taxes up front, that would equate to about $412.

Homeowners Association Transfer Fee

If you are buying a home that is owned by a homeowners association (HOA), you may have to pay a fee to transfer the seller’s membership to you. This amount varies and is sometimes covered by the seller.

Escrow Fund

Some of the closing costs you pay will go into escrow as a reserve fund. Your lender can tap into your escrow account to make payments on your behalf. You will often put a number of months of expenses in escrow at closing to cover property taxes, home insurance, PMI, and other premiums. Escrow fees can cost between $300 and $700 or more and are usually based on your loan amount or purchase price.

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Who pays the closing costs?

Buyers are responsible for most of the closing costs mentioned above, but sellers must also cover certain costs. Here are some closing costs for sellers:

  • Escrow Fees: Sometimes sellers cover half the amount it costs to use an escrow account. As mentioned, these fees often range between $300 and $700, but may be higher depending on the amount of your loan or the purchase price of the home.

  • Realtor commission: If you’re selling a home, you’ll usually pay a commission to your seller’s agent and the buyer’s agent. This often costs between 5% and 6% of the sale of the house.

  • Transfer taxes : Most states charge a tax to transfer property from seller to buyer. These charges are usually based on the purchase price or estimated value and may be covered by the seller, the buyer, or both.

  • Title insurance: This insurance protects the seller and lender against any title issues, such as someone else claiming rights to the property. This could cost 0.5% to 1% of the home loan.

  • Lawyer’s fees: Sellers usually only cover this cost if they hire their own lawyer to close.

If the market is slow, a seller may also offer to help pay some of the buyer’s closing costs. These closing credits, also known as seller’s concessions, will form part of the sales contract.


What are closing documents?

Closing a house involves signing many documents. Here are some of the closing documents you will likely encounter at the closing table:

  • Final disclosure: This describes all the terms and conditions of your loan. Lenders are legally required to provide this disclosure at least three business days before closing.

  • Loan estimate: This covers your mortgage terms, payments, interest rate and closing costs.

  • Loan request: You will receive a copy of your initial mortgage application to review and sign. Tell your lender if there have been any significant changes since you first filled it out.

  • Deed of trust: This secures your mortgage with your home as collateral. If you don’t pay off your mortgage, the bank can foreclose on your house.

  • Title documents: These documents guarantee that the property is in order and ready to be sold.

  • Proof of home insurance: Your insurance company must provide your lender with proof of your insurance.

Can closing costs be included in a loan?

While you can build closing costs into your loan when you refinance a mortgage, you usually can’t when buying a new home. However, it may be possible to get the lender to cover closing costs in exchange for a higher interest rate on your mortgage.

Be careful when exercising this option, however, as increasing your interest rate will result in higher monthly payments and interest charges. It may be better to cover closing costs up front than to increase the interest rate on your mortgage.

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At the end of the line

Your specific closing costs will vary depending on your loan amount, the value of your home, and state taxes and laws. In a slow market, you might also be able to negotiate with the seller to cover some of your costs.

Your lender will send you a closing disclosure and loan estimate at least three days before closing so you know what to expect before you sign the paperwork. An experienced and reliable lender can also help the process run smoothly while offering competitive mortgage rates.

If you are just beginning the home buying process, check out our recommendations for the best mortgage lenders.

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