In a Nutshell
Closing costs are important to account for, since most fees will come out-of-pocket. Both homebuyers and sellers are responsible for these expenses. Find out how much these fees will cost you and what they will include before you enter the homebuying process.Paying for closing costs is one of the last steps in buying a home — covering all fees associated with your transaction.
Closing costs encompass the variety of expenses associated with homebuying and selling, such as the appraisal, taxes, title insurance, credit report fee, origination fee and other prepaid costs until your first payment is due. These fees will typically cost 2% to 5% of the total home purchase price.
Keep in mind that you might be able to find a program to help with these expenses or negotiate with the seller to cover some of these costs.
How much are closing costs?
Closing costs typically range between 2% and 5% of the total home purchase price. These costs come on top of your down payment, and you’ll need to pay these third-party costs upfront before you close on your mortgage.
Depending on where you live, first-time homebuyer programs are available to help you pay for closing costs. Many housing finance agencies offer some form of down payment and closing cost assistance to qualified buyers who meet income and purchase price requirements.
You may also be able to find programs for forgivable grants, deferred payment second mortgages and fully amortizing second loans. Down payment assistance programs are often targeted toward certain groups, such as first-time homebuyers, active military members, veterans or teachers.
Who pays closing costs?
Generally, homebuyers pay most of the expenses associated with closing costs. But, depending on your contract or state of residence, these expenses may vary.
Home sellers usually pay for the real estate agent commissions for both the sellers and the buyers.
What are some common closing costs for homebuyers?
- Loan origination fee — What the lender charges the borrower for administrative services, such as processing the application, underwriting and funding the mortgage loan.
- Credit report fee — Typically less than $30, this is a fee a lender can collect before providing you with a loan estimate.
- Appraisal fee — Service fees covering an assessment determining how much your property is worth.
- Home inspection fee — Typically ranging between $300 and $500, a home inspection provides an assessment of the physical condition of a house.
- Title service fee — Costs related to the premium for the lender’s title insurance policy and lender’s service fees for issuing title insurance.
- Recording fee — Fees your local government issues for recording your deed, mortgage and documents related to your home loan.
- Prepaid expenses — Includes property taxes, interest until your first payment is due and homeowners insurance. Your mortgage lender may set up an escrow account to pay these expenses. Depending on where you live, an escrow account could be required by law.
What are some common closing costs for home sellers?
- Real estate agent commissions — Accounts for typically 5% to 6% of the sale price.
- Transfer tax — A tax on the transaction required by state or local government.
- Seller credits — Funds that the seller contributes to cover some of the buyer’s closing costs or repairs needed.
- Attorney fees — Depending on your state’s laws, you may not be required to have an attorney present at closing. However, it’s probably a good idea to have an attorney represent you and answer any questions before and at closing.
Can I add closing costs to my loan?
If you don’t pay closing costs upfront, you may pay for them as part of your mortgage loan.
With a no-closing-cost refinance, a lender may offer you lender credits — also called negative points — found in Section J on the second page of your loan estimate. Lender credits represent money the lender provides to cover closing costs upfront.
This may be appealing if you don’t have the cash on hand for closing costs. But keep in mind that since a no-closing-cost refinance will add expenses to your loan balance, you’ll have a larger loan to pay back.
Common Question
What are points?
Many lenders offer mortgage points you can buy to lower your interest rate. Points are usually offered as a percentage of your mortgage cost.
What’s next?
When you’re preparing to buy a home, remember that your lender must send you closing disclosure documents at least three business days ahead of time. Make sure to review these documents thoroughly.
You should also compare your closing disclosure to your most recent loan estimate and get any questions or discrepancies resolved by your loan officer.
Estimate your closing costs
Use our closing costs calculator to get a better idea of how much your closing costs could be when buying a home.