Closing costs: average cost + how to calculate

What’s included in 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 the buyer, the seller and the real estate professionals involved with the home’s sale. This meeting is when the title is officially signed over to the buyer, making the home purchase official.

Closing costs may 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 then the closing disclosure includes the final tally of closing costs.

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

• Appraisal, inspection and survey fees: The buyer covers the cost of any inspection or appraisal fees that 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: Fees associated with your loan include application fees, credit report fees, loan origination fees, attorney’s fees and assumption fees. If you choose to pay discount points to lower your interest rate, these are also included in your closing costs.
• Insurance: You’ll pay for private mortgage insurance (PMI) if you make a down payment of less than 20% for a conventional mortgage, and you’ll also 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 to protect 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, homeowners association fees, recording fees and other expenses could show up on your closing disclosure. Be sure to review the disclosure carefully at closing to ensure you understand all the fees required.

How much are average closing costs?

Closing costs typically range from 2% to 5% of a home’s purchase price. In 2021, the average closing cost total paid by a homebuyer was $6,905 (including taxes) for a single-family property, according to a ClosingCorp analysis. For a home that costs $350,000, closing costs would fall between $7,000 and $17,500.

Where you live can also greatly affect your closing costs. Closing costs tend to be higher in coastal states, particularly in East Coast states like New York, Delaware and Washington, D.C.

The chart below provides a snapshot of the average closing costs by state for the same $350,000 house, illustrating how much closing costs can vary based on location.

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 generally pay fees related to their loan, credit report, title search, lender’s title insurance, homeowners insurance, inspections, appraisals, surveys, settlements, attorney’s fees and recording 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’s fees and transfer taxes.

“Closing costs can feel daunting, especially for buyers. Sellers often have an advantage in covering these costs through home equity,” said Ruth Johnson, the CEO of Homes for Heroes, a network of real estate specialists that offers discounts to homebuyers who serve their community and/or country (like firefighters, healthcare professionals and military personnel).

“When buying a home, consider negotiating seller concessions or finding a program that helps offset these costs. While asking for seller concessions might affect offer competitiveness, you can gain an edge by finding other programs that assist with down payment assistance or provide funds at or after closing,” said Johnson.

Keep in mind that there may be a cap to the amount of seller concessions allowed, depending on the type of mortgage, such as:

• Conventional loan: a maximum of 9% of the sale price or appraised value, whichever is less, depending on the down payment amount
• Federal Housing Administration (FHA) loan: up to 6% of the purchase price
• Department of Veterans Affairs (VA) loan: up to 4% of the home loan amount
• Department of Agriculture (USDA) loan: up to 6% of the sale price

“When the housing market becomes more robust in a buyer's market, there are several ways homebuyers can ask sellers to help cover the fees that come with closing on a home,” explained David Barber, a broker associate at RE/MAX Leaders in Centennial, Colorado.

“While it varies from market to market, savvy buyers should ask for help covering fees related to the appraisal, loan origination and/or title insurance. These are common points to negotiate. Other areas, though these are not as common, are homeowners association fees (ask the seller to pay out the year) and other fees related to title search and escrow, which cover the cost of services needed to pass the home from one owner to another."

» MORE: How to negotiate your mortgage closing costs

How to calculate closing costs

To calculate closing costs, you can estimate 2% to 5% of the home’s total purchase price. For example, if you bought a house for $300,000, you can estimate closing costs between $6,000 and $15,000.

If you negotiate seller concessions, you need to subtract this amount from the closing costs. If, for example, the seller agrees to cover 1% of the closing costs for a $300,000 home, then you would subtract $3,000 from the total closing costs. The closing disclosure should reflect this amount as well.

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.

Rolling closing costs into a mortgage

If you’re refinancing your home, your lender will likely let you roll the closing costs into the total loan amount. For new home purchases, this isn’t always an option.

Lenders will consider the home’s loan-to-value ratio and your debt-to-income ratio before letting you include closing costs in the mortgage. In some instances, your lender might increase your mortgage’s interest rate in exchange for the reduction or elimination of closing costs.

If your lender does let you roll closing costs into your mortgage, you’re not expected to pay the lump sum on closing day, but this also means you’ll be paying interest on the closing costs over the life of the loan, which is typically 15 to 30 years. You’ll pay a lot more in closing overall with this method.

Closing costs and your taxes

You can deduct some closing costs from your taxes in the year you pay the closing costs, over the life of the loan or when you sell the home.

• In the year of closing, you can deduct loan origination fees, discount points, PMI (for homes purchased before 2022), FHA mortgage insurance premiums and some fees associated with VA and USDA loans.
• Over the life of the loan, you can deduct a portion of the points paid for a refinance.
• When you sell your home, you can deduct title insurance, property taxes, title fees, recording fees, survey fees and transfer taxes.

There may be other stipulations regarding how and when you can deduct certain fees. Ask your tax preparer, lender or other financial advisors which fees you can deduct from your taxes.

» MORE: Tax deductions for homeowners

Bottom line

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 a portion of them 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 generally expect to pay between 2% and 5% of a home’s purchase price on top of your down payment at closing.