You’ve found the house, the offer is accepted, and then a list of fees shows up. Closing costs surprise a lot of people, but they’re predictable once you know what’s on the list. Here’s what they are, who pays, and how to keep them down.
What Are Closing Costs?
Closing costs are the fees and expenses paid to finalize a real estate transaction, over and above the price of the home. They cover the services and taxes involved in transferring ownership and setting up the loan.
How Much Should You Expect to Pay?
As a general rule of thumb, buyers often pay roughly 2% to 5% of the purchase price in closing costs. Sellers typically pay more in total, often 6% to 10% when you include agent commissions, though commission arrangements are more negotiable than they used to be. Exact amounts vary by state, loan type, and the price of the home, so get an estimate from your lender early.
Common Closing Costs for Buyers
- Loan origination fee: the lender’s charge for processing the loan
- Appraisal fee: pays the appraiser who determines the home’s value
- Credit report fee: covers pulling your credit
- Home inspection: often paid separately, before closing
- Title search and title insurance: confirms the seller has the right to sell and protects against ownership disputes
- Attorney or escrow fees: vary by state
- Recording fees: charged by the local government to record the deed and mortgage
- Prepaid items: often the first year of homeowners insurance, plus some property taxes and mortgage interest
- Escrow deposits: an initial cushion for taxes and insurance
- Discount points (optional): upfront fees paid to lower your interest rate
Common Closing Costs for Sellers
- Agent commissions: usually the largest expense
- Title and escrow fees: depending on local custom and your contract
- Transfer taxes: charged in some states and cities
- Prorated property taxes: you pay your share up to the closing date
- Repair credits or concessions: if negotiated after the inspection
- Mortgage payoff and related fees: paying off your existing loan
- HOA fees: transfer fees or dues owed, if applicable
Who Pays What?
Much of this is negotiable and depends on your state’s customs. Buyers typically pay lender and loan-related fees. Sellers typically pay commissions and transfer taxes. Title and escrow costs are often split or assigned by local practice. Your purchase contract spells out the final arrangement.
Closing Disclosure: Your Best Friend
At least three business days before closing, your lender must give you a Closing Disclosure, which itemizes every fee. Compare it to your earlier Loan Estimate and ask about anything that changed or looks unfamiliar.
Ways to Lower Your Closing Costs
- Shop around. Compare lenders origination and processing fee.
- Negotiate seller concessions in a buyer friendly market. Ask the seller to contribute toward your costs.
- Ask for lender credits. You may accept a slightly higher rate in exchange for lower upfront fees.
- Time your closing. Closing near the end of the month can reduce prepaid interest.
- Look into assistance programs. Some state and local programs help first-time buyers with closing costs.
- Question every fee. Some lender fees can be reduced or waived.
The Bottom Line
Closing costs are a normal part of buying or selling, and they’re far less intimidating when you plan for them. Ask for estimates early, review your Closing Disclosure carefully, and build the cost into your budget from the start. Your lender, agent, and closing attorney or title company can answer questions specific to your state.
This post is for general information only and isn’t legal or financial advice.