Closing costs are the fees and charges you pay to finalize a home purchase or refinance. They’re separate from the down payment and due at the closing table, though some can be rolled into the loan.
For buyers, closing costs typically range from 2% to 5% of the loan amount. On a $350,000 mortgage, that is $7,000 to $17,500 in addition to the down payment.
Who Pays Closing Costs
Both buyers and sellers pay closing costs, though the categories differ.
Buyers typically pay:
- Lender origination and underwriting fees
- Appraisal fee
- Title search and title insurance (lender’s policy)
- Prepaid interest, property taxes, and homeowners insurance
- Recording fees
- Survey fee (if required)
Sellers typically pay:
- Real estate agent commissions (historically 5–6% of sale price, though this is shifting after recent NAR settlement changes)
- Transfer taxes
- Owner’s title insurance policy
- Prorated property taxes through the closing date
- Any agreed-upon concessions to the buyer
Common Buyer Closing Cost Line Items
Loan origination fee: Charged by the lender for processing the loan. Can be expressed as a flat dollar amount or a percentage of the loan (often 0.5–1%). Sometimes called discount points if you are paying to buy down the interest rate.
Appraisal fee: A licensed appraiser verifies the home’s market value. Typically $300–$700. Required by the lender, not optional.
Credit report fee: The lender charges for pulling your credit. Usually $30–$50.
Title search: A title company researches the property’s ownership history to confirm there are no liens or legal claims. Typically $200–$400.
Lender’s title insurance: Protects the lender if a title defect is discovered after closing. Usually 0.1–0.5% of the loan amount. Required for most mortgages.
Owner’s title insurance: Protects the buyer from the same risks. Optional but strongly recommended. Often $500–$1,500.
Prepaid interest: Interest accrues from the day you close through the end of the month. If you close on the 15th, you prepay about 15 days of interest at closing.
Escrow setup (prepaids): Lenders often require an initial escrow deposit covering 2–3 months of property taxes and homeowners insurance so the escrow account starts with a cushion.
Recording fees: The county charges to record the deed and mortgage. Usually $100–$300.
Home inspection: Not technically a closing cost (paid before closing during the contingency period), but often forgotten in the upfront cost calculation. Typically $300–$600.
What Is a Loan Estimate
When you apply for a mortgage, the lender is required to provide a Loan Estimate within three business days, this is a standardized three-page document that lists all projected closing costs, the interest rate, monthly payment, and loan terms.
The Loan Estimate lets you compare lenders on equal footing, the format is the same no matter who you apply with. Pay attention to:
- Section A: Origination charges (lender fees)
- Section B: Services you cannot shop for (appraisal, credit report)
- Section C: Services you can shop for (title, settlement, attorney)
- Section G: Initial escrow payment at closing
- Section H: Other costs
You can shop around for Section C services, the title company, closing attorney, and settlement agent, and sometimes find meaningfully lower fees.
What Is a Closing Disclosure
At least three business days before closing, you receive a Closing Disclosure, the final version of the loan costs. Compare it line by line to the Loan Estimate. Some fees cannot change at all (Section A lender fees), some cannot increase by more than 10% (Section B), and some can change freely (Section C if you chose your own providers).
If a fee increases beyond the allowed tolerance, ask the lender to cure (refund) the difference.
Seller Concessions
In some markets and transactions, sellers agree to cover a portion of the buyer’s closing costs, called seller concessions or seller credits, this is more common when:
- The market favors buyers
- The seller needs to move quickly
- The buyer has limited cash beyond the down payment
- It is part of negotiated repair credits after inspection
Lenders cap how much sellers can contribute based on loan type and down payment percentage (typically 2–6% of the purchase price).
No-Closing-Cost Loans
Some lenders offer no-closing-cost loans, where the lender covers the closing costs in exchange for a higher interest rate. The costs do not disappear. They’re spread into the rate over the life of the loan.
This can make sense if you plan to sell or refinance within a few years and do not want to pay upfront costs that you would not recoup. If you plan to stay long-term, paying closing costs upfront usually costs less in total interest.
How to Reduce Closing Costs
- Compare at least two or three lenders. Section A (origination) fees vary significantly.
- Shop for title and settlement services. Section C fees are negotiable.
- Ask about lender credits. Accepting a slightly higher rate may reduce upfront costs.
- Close at the end of the month. You prepay less interest if there are fewer days left in the month.
- Negotiate seller concessions. Particularly in slower markets.
- Check for first-time buyer programs. State housing finance agencies often offer closing cost assistance.
Frequently Asked Questions
Q: Can closing costs be rolled into the mortgage?
Rarely with purchase loans, lenders generally do not let you borrow more than the home’s value. With refinances, it is more common. A no-closing-cost refinance effectively wraps costs into the new loan balance or rate.
Q: Are closing costs the same as prepaid items?
No. Closing costs include lender fees, title costs, and recording fees. Prepaid items are costs you pay in advance, interest, taxes, and insurance, that belong to you, not the lender. Both appear on the Closing Disclosure.
Q: What happens if I do not have enough cash to cover closing costs?
Options include negotiating seller concessions, requesting a lender credit in exchange for a higher rate, or using a no-closing-cost loan. Some down payment assistance programs also cover closing costs.
Q: Do closing costs differ by state?
Yes, significantly. Transfer taxes, recording fees, and attorney requirements vary by state and county. New York, Maryland, and Washington DC historically have higher closing costs; states without transfer taxes or with lower regulatory overhead tend to have lower costs.