How much are closing costs?

What are closing costs?

Closing costs are fees paid at the end of the homebuying process. They’re due at closing, which is the final meeting between buyers, sellers and real estate professionals, when the title is officially signed over to the buyer, making the home purchase official. Closing costs include insurance, appraisal fees, taxes and other fees associated with the purchase of a home. You’ll get an estimate of your closing costs in your Loan Estimate, and the final closing costs are included in your Closing Disclosure.

How much are closing costs on a house?

Closing costs typically range from 2% to 5% of the total home loan amount. In 2019, the average closing cost paid by a homebuyer was $5,749 (including taxes). For a home that costs $285,000 with 20% down, typical closing costs would fall around $7,000. Where you live can also greatly affect your closing costs — these costs tend to be higher on the coasts, particularly in East Coast states including New York, Delaware and the District of Columbia.

Use the chart below to explore the average closing costs by region for the same $285,000 house.

How to calculate closing costs

To calculate closing costs, you can estimate 2% to 5% of the total amount you plan to finance. For example, with a loan of $200,000, you could estimate closing costs between $4,000 and $10,000.

To get a more accurate estimate, request a Loan Estimate document from your potential lender. This document provides a breakdown of fees and estimated closing costs for your mortgage.

Closing cost fees

As a general rule, buyers pay the following fees at closing:

• Appraisals, inspections and surveys: The buyer covers the cost of any inspections or appraisal fees on the property to confirm the value of the home and its condition. This typically amounts to $300 to $1,000, depending on which services your mortgage lender requires.
• Loan fees: You’ll pay any fees associated with your loan, including application fees, credit report fees, loan origination fees, attorney’s fees, assumption fees and prepaid interest. If you choose to pay discount points to lower your interest rate, this will also be included in your closing costs.
• Insurance: You’ll pay for private mortgage insurance if you make a down payment of less than 20%, and you’ll also have to pay upfront for the first year of homeowners insurance.
• Title fees: Closing costs include title search fees of around $200, as well as title insurance for both the lender and the buyer. Title insurance ranges from 0.5% to 1% of the purchase price.
• Other fees: There’s a wide variety of other fees associated with closing. Courier fees, HOA fees, recording fees and other expenses could show up on your Closing Disclosure — be sure to review this document carefully at closing to ensure you’re aware and approve of all fees required.

How to reduce closing costs

Closing costs are a standard part of the homebuying process; however, with some thoughtful planning and negotiation, you can greatly reduce or eliminate your closing costs.

1. Compare fees between lenders: When you’re shopping for a mortgage lender, don’t be afraid to ask for quotes or estimates on closing costs and other fees associated with the transaction. When you get your list of closing costs, go over it with your lender and ensure you understand everything listed. Ask what wiggle room, if any, is available. Don’t forget to compare costs during other parts of the closing process — like inspections. Don’t feel obligated to use a service provider recommended by your lender or real estate agent if you think you can get a lower price and trustworthy service through another provider.
2. Negotiate fees with the seller: A motivated seller is often willing to negotiate on closing costs. With the right negotiation, you might be able to get the seller to pay for some or all of your closing costs. This is a common tactic in a buyer’s market.
3. Schedule your closing date wisely: As part of closing, you’ll pay prorated interest for each day between the date of your closing and the start of the first full month when your mortgage payment is due. This means if you close early in the month, you’ll be stuck paying a much larger interest fee at closing than you would closing toward the end of the month.

Who pays closing costs?

As a general rule, both buyers and sellers pay closing costs, though the exact breakdown depends on what’s negotiated between the parties:

• Buyer’s closing costs: Buyers pay fees related to their loan, credit report, title search, lender’s title insurance, homeowners insurance, inspections, appraisals, surveys, settlements and attorney fees.
• Seller’s closing costs: Sellers typically pay the real estate agent’s commission, buyer’s title insurance, mortgage prepayment penalties, any outstanding debts on the property, their attorney fees, transfer taxes and recording fees.

However, over the course of negotiation, the seller may agree to cover some or all of the closing costs. This is generally done to incentivize buyers to purchase slow-moving homes or when the seller is motivated to sell quickly. If you’re buying a home, you can also ask the seller to cover closing costs as an alternative to lowering the sale price. Sellers will be especially motivated to accept this offer if you agree to a quick close and make fewer demands for repairs or changes to the home.

How does closing on a house work?

Closing is the final step of buying or selling your home, occurring between 30 and 45 days after an offer is made. During this meeting, the buyer and seller meet with their respective real estate agents to finalize the sale. This meeting involves the signing of official documents, which then are sent to the closing agent. In many instances, the buyer and seller meet together for closing, but they may also be represented by their real estate agent or a third party.

If the meeting is in person (at a real estate agent’s office or another location) rather than virtual, closing includes signing all the necessary paperwork to transfer the property from the seller to the buyer. The buyer and seller should come prepared with photo ID, their real estate agent or lawyer, the purchase agreement, proof of homeowners insurance and a certified or cashier’s check for out-of-pocket payment.

Closing documents are prepared by the closing agent, title company, lending company and attorneys if their services are required. Both parties can review the terms of the arrangement, including a Closing Disclosure, which covers all closing costs for both the buyer and seller. Both parties then sign all documents, after which the seller is paid and the buyer gets keys to the home. This is typically a brief meeting lasting only a few minutes, but it can last up to several hours if it’s complicated or if lawyers are involved.

Bottom line: Be prepared for closing costs

Closing costs are part of the process of buying a home. Whether you pay them upfront, roll them into your loan or request that the seller pay closing costs on your behalf, you can plan to do a lot of talking about closing costs throughout the purchasing process. Remember to seek lenders that offer reasonable fees, and don’t be afraid to ask a seller to make some concessions on closing costs if you feel you’ve made a good offer or that they’re a particularly motivated seller. If you’re not able to negotiate these costs, you can expect to pay between 2% and 5% on top of your down payment at closing.