Closing costs represent one of the most significant—and often surprising—expenses in the home buying process. These fees, which typically range from 2% to 6% of your loan amount, cover everything from processing your mortgage to transferring property ownership. On a $300,000 loan, that translates to $6,000 to $18,000 in additional expenses beyond your down payment.
According to Bankrate's 2025 analysis, the national average closing costs totaled $4,661 including taxes (or $3,042 without transfer taxes). However, these costs vary dramatically by state—from less than 1% in South Dakota to nearly 3% in Delaware. Understanding what you're paying for, who pays what, and how to negotiate can save you thousands of dollars when you reach the closing table.
What Are Closing Costs?
Closing costs are the fees and expenses beyond the property's purchase price that buyers and sellers pay to finalize a real estate transaction. These costs occur when the property title officially transfers from seller to buyer and the mortgage becomes active.
Under the Real Estate Settlement Procedures Act (RESPA), lenders must provide buyers a Closing Disclosure outlining all fees at least three business days before closing. This gives you time to review charges and question anything that seems incorrect.
The Consumer Financial Protection Bureau (CFPB) explains that closing costs encompass a wide range of services required to complete your home purchase, including:
- Loan processing and origination
- Property appraisal and inspection
- Title search and insurance
- Government recording fees
- Prepaid expenses (taxes, insurance, interest)
- Escrow account funding
These costs exist because multiple parties provide services essential to completing your transaction safely and legally. Your lender needs to verify the property value, attorneys or title companies must ensure clear ownership, and various government entities require fees to record the new deed.
Typical Closing Cost Ranges
How much you pay depends on your loan amount, location, loan type, and negotiating skills. Here's what to expect:
| Metric | Typical Amount |
|---|---|
| Buyer closing cost range | 2%–6% of loan amount |
| National average (with taxes) | $4,661 |
| National average (without taxes) | $3,042 |
| $200,000 loan example | $4,000–$12,000 |
| $300,000 loan example | $6,000–$18,000 |
| $500,000 loan example | $10,000–$30,000 |
State-by-State Variation
Where you buy significantly impacts your closing costs. According to Bankrate's state-by-state analysis, closing costs as a percentage of purchase price vary widely:
Highest closing cost states:
- Delaware: 2.99%
- New York: 2.47%
- Washington D.C.: 2.39%
- Maryland: 2.03%
Lowest closing cost states:
- South Dakota: 0.46%
- Missouri: 0.60%
- Iowa: 0.64%
- Indiana: 0.70%
States with transfer taxes (fees charged when property changes hands) tend to have higher overall closing costs. Several states have no transfer taxes at all: Alaska, Idaho, Indiana, Kansas, Louisiana, Mississippi, Missouri, Montana, New Mexico, North Dakota, Oregon (most counties), Texas, Utah, and Wyoming.
Buyer vs. Seller Closing Costs
Both buyers and sellers pay closing costs, though the types of fees differ significantly. Understanding this division helps you negotiate more effectively and budget accurately.
What Buyers Typically Pay
As a buyer, you're responsible for most loan-related fees and prepaid expenses:
| Fee Category | Typical Cost | Purpose |
|---|---|---|
| Loan origination fee | ~1% of loan amount | Lender processing costs |
| Appraisal fee | $500–$800 | Property value assessment |
| Credit report fee | $25–$50 | Credit history verification |
| Title search | $200–$400 | Ownership verification |
| Lender's title insurance | $500–$1,500 | Protects lender from title issues |
| Home inspection | $300–$500 | Property condition assessment |
| Attorney fees (some states) | $500–$1,500 | Legal document review |
| Escrow/closing fee | $300–$700 | Third-party closing management |
| Recording fees | ~$125 | Government deed recording |
| Flood determination | ~$50 | Flood zone verification |
| Survey fee | $300–$500 | Property boundary verification |
| Prepaid interest | Varies | Interest from closing to first payment |
| Homeowners insurance | Varies | First year premium |
| Escrow deposits | 2–3 months of taxes/insurance | Reserve account funding |
Building your credit score before applying helps you qualify for better loan terms, which can indirectly reduce your closing costs through lower interest rates and fees.
What Sellers Typically Pay
Sellers generally pay fewer closing costs, but they're often larger individual amounts:
- Real estate agent commissions: The largest seller expense, though commission structures have been evolving since 2024
- Transfer taxes: Where applicable, based on sale price
- Owner's title insurance: In some states, sellers provide this protection to buyers
- Any negotiated seller concessions: Credits toward buyer closing costs
In buyer's markets, sellers may be more willing to cover a portion of your closing costs as an incentive. This is called a seller concession, and limits vary by loan type.
Complete Fee Breakdown
Understanding each fee helps you identify what's negotiable and what's fixed. Here's a detailed breakdown of common closing costs:
Loan-Related Fees
Loan Origination Fee (0.5%–1% of loan amount) This covers the lender's administrative costs for processing your mortgage application, including underwriting, document preparation, and funding. Some lenders advertise "no origination fee" loans but compensate through higher interest rates.
Discount Points (1% of loan per point) Optional fees you can pay upfront to reduce your interest rate. Each point typically lowers your rate by 0.25%. Whether points make sense depends on how long you plan to stay in the home—if you'll keep the mortgage long enough to recoup the upfront cost through monthly savings.
Application Fee ($0–$500) Some lenders charge for processing your initial application. Many have eliminated this fee, so shop around. Getting pre-approved for a mortgage with multiple lenders helps you compare these fees.
Property-Related Fees
Appraisal Fee ($500–$800) A licensed appraiser assesses your home's fair market value to ensure the property is worth the loan amount. The lender orders this directly, and you typically pay when it's scheduled. Learn more about what to expect in our home appraisal guide.
Home Inspection ($300–$500) While technically optional, skipping a home inspection is risky. A professional inspector examines the property's structure, systems, and components to identify potential problems before you commit.
Pest Inspection (~$150) Checks for termites, wood-boring insects, and related damage. Some lenders require this, especially for FHA and VA loans.
Survey Fee ($300–$500) Confirms property boundaries and identifies any encroachments. Not always required, but recommended if there's any question about property lines.
Title and Legal Fees
Title Search ($200–$400) A title company examines public records to verify the seller has legal right to transfer ownership and that no liens, judgments, or other claims exist against the property.
Title Insurance ($1,000–$4,000) Protects against financial loss from title defects discovered after closing. Two types exist:
- Lender's policy: Required; protects the lender's interest
- Owner's policy: Optional but recommended; protects your ownership
Attorney Fee ($500–$1,500) Required in some states (like New York and Massachusetts) for document review and closing supervision. Even where optional, having an attorney review your closing documents can prevent costly mistakes.
Escrow/Closing Fee ($300–$700) Paid to the title company or escrow agent who coordinates the closing, holds funds, and ensures all conditions are met before transferring ownership. For more on how this works, see our guide on escrow explained.
Government Fees
Recording Fee (~$125) Paid to your county or city to officially record the new deed and mortgage in public records.
Transfer Taxes (varies by location) State, county, or municipal taxes charged when property changes hands. Rates range from 0% in states without transfer taxes to over 2% in some high-cost areas.
Prepaid Items
These aren't fees but advance payments for recurring costs:
Prepaid Interest Interest accruing from your closing date until your first mortgage payment is due. Closing later in the month reduces this amount since fewer days of interest accumulate.
Homeowners Insurance Premium Your first year's premium is typically due at closing. Your lender requires proof of insurance to protect their investment.
Escrow Deposits Lenders collect 2–3 months of property taxes and homeowners insurance upfront to establish a reserve in your escrow account. This ensures funds are available when bills come due.
Private Mortgage Insurance (PMI) If your down payment is less than 20% on a conventional loan, you'll likely pay PMI. Some of this may be collected at closing.
Government-Backed Loan Fees
Specific loan types carry additional upfront fees:
| Loan Type | Upfront Fee | Notes |
|---|---|---|
| FHA Loan | 1.75% of loan amount | Upfront mortgage insurance premium (UFMIP) |
| VA Loan | 1.25%–3.3% of loan amount | Funding fee; varies by down payment and usage |
| USDA Loan | 1% of loan amount | Upfront guarantee fee |
These fees can often be rolled into your loan amount rather than paid at closing.
How to Negotiate and Reduce Closing Costs
Closing costs aren't set in stone. With preparation and negotiation, you can potentially save thousands.
Shop Around for Lenders
Lenders must provide a Loan Estimate within three business days of receiving your mortgage application. This standardized form lets you compare costs across lenders on an apples-to-apples basis.
According to the CFPB, comparing Loan Estimates from at least three lenders can save you significant money. Pay attention to:
- Origination charges (Section A)
- Services you cannot shop for (Section B)
- Services you can shop for (Section C)
- Total closing costs (Section J)
- Cash to close (bottom of page 2)
Shop for Third-Party Services
Your lender will provide a list of required services, but you're not obligated to use their suggested providers for many of them. Services you can typically shop for include:
- Title insurance
- Survey services
- Pest inspection
- Home inspection
- Settlement/closing services
Get quotes from multiple providers and compare. Even small savings on each service add up.
Time Your Closing Strategically
Closing later in the month reduces prepaid interest charges. If you close on the 25th instead of the 5th, you'll pay approximately 20 fewer days of interest upfront.
However, don't delay closing just to save on prepaid interest if it puts your rate lock at risk or creates other problems.
Challenge Questionable Fees
Review your Loan Estimate and Closing Disclosure carefully. Question any fees that seem excessive or weren't disclosed earlier. Watch for:
- Excessive document preparation fees
- Duplicate processing fees
- Administrative fees that duplicate origination fees
- Unexplained "miscellaneous" charges
The CFPB's Your Home Loan Toolkit provides guidance on identifying and questioning questionable fees.
Negotiate Specific Fees
Some fees have more room for negotiation than others:
More Negotiable:
- Loan origination fee
- Application fee
- Rate lock fee
- Processing fee
- Title insurance (especially owner's policy)
Less Negotiable:
- Appraisal fee (set by third-party appraiser)
- Credit report fee
- Recording fees (set by government)
- Transfer taxes (set by law)
Ask About Lender Credits
Some lenders offer credits toward closing costs in exchange for a slightly higher interest rate. This can make sense if you're short on cash at closing but plan to refinance or sell within a few years.
Seller Concessions: Getting Help with Closing Costs
Seller concessions occur when the seller agrees to pay a portion of the buyer's closing costs. This is negotiated as part of your purchase offer and subject to limits based on your loan type.
Maximum Seller Concession Limits
| Loan Type | Down Payment | Maximum Seller Contribution |
|---|---|---|
| Conventional | Less than 10% | Up to 3% of sale price |
| Conventional | 10%–25% | Up to 6% of sale price |
| Conventional | More than 25% | Up to 9% of sale price |
| Conventional | Investment property | Up to 2% of sale price |
| FHA | Any | Up to 6% of sale price |
| VA | Any | Up to 4% of loan amount |
Seller concessions cannot exceed your actual closing costs. If your closing costs total $8,000, the seller can contribute up to $8,000—not beyond that amount—even if the percentage limit would allow more.
When to Request Seller Concessions
Seller concessions work best when:
- You're buying in a buyer's market
- The property has been listed for a while
- You're a strong buyer (solid pre-approval, flexible timeline)
- The seller is motivated
In hot seller's markets, asking for concessions may weaken your offer compared to competing buyers who don't request them.
How to Structure Concession Requests
Rather than simply asking for "3% toward closing costs," consider requesting a specific dollar amount based on your Loan Estimate. This shows the seller you've done your homework and aren't overreaching.
For first-time homebuyers, seller concessions can be especially valuable since you may be stretching to cover both the down payment and closing costs.
No-Closing-Cost Mortgages: Pros and Cons
Some lenders offer "no-closing-cost" mortgages where traditional fees are eliminated at closing. But there's no free lunch—you pay for this convenience in other ways.
How No-Closing-Cost Mortgages Work
Lenders offer two main structures:
Higher Interest Rate The most common approach. The lender covers closing costs in exchange for charging a higher interest rate—typically 0.25% to 0.5% higher than their standard rate.
Rolled Into Loan Less common. Closing costs are added to your loan principal, increasing your total balance and monthly payments.
Cost Comparison Example
According to Investopedia's analysis, on a $500,000 loan, choosing a no-closing-cost option with a 0.5% higher rate could cost approximately $54,000 more in interest over 30 years compared to paying closing costs upfront.
| Scenario | Upfront Costs | 30-Year Interest Cost | Total Cost |
|---|---|---|---|
| Pay closing costs ($15,000), 6.5% rate | $15,000 | $638,000 | $653,000 |
| No closing costs, 7.0% rate | $0 | $692,000 | $692,000 |
| Difference | -$15,000 | +$54,000 | +$39,000 |
When No-Closing-Cost Makes Sense
Good candidates:
- Buyers short on cash at closing
- Those planning to sell or refinance within 5 years
- When interest rates are expected to drop (you'll refinance soon)
- Investment property purchases where cash preservation matters
Poor candidates:
- Buyers who can afford closing costs
- Those planning to stay long-term
- Anyone who won't refinance regardless of rates
Calculate your break-even point. Divide your closing costs by the additional monthly payment from the higher rate. That's how many months until paying closing costs upfront becomes the better deal.
What's Still Not Covered
Even with "no-closing-cost" mortgages, some expenses typically still apply:
- Prepaid items (taxes, insurance, interest)
- Transfer taxes
- Attorney fees (where required)
- Recording fees
Review the details carefully—"no closing costs" rarely means zero expenses at closing.
Closing Cost Assistance Programs
If you're struggling to cover closing costs, assistance programs may help. Various options exist at federal, state, and local levels.
Types of Assistance Available
Grants Free money that doesn't require repayment. Often targeted at first-time buyers, low-to-moderate income households, or specific professions (teachers, first responders, healthcare workers).
Forgivable Loans Loans that become grants if you stay in the home for a specified period (often 5–10 years). Move or sell too soon, and you'll repay a prorated amount.
Deferred-Payment Loans No monthly payments required. Repayment is due when you sell, refinance, or pay off your primary mortgage.
Low-Interest Loans Below-market interest rate loans that must be repaid, but with favorable terms.
Where to Find Assistance
The CFPB and HUD provide resources to locate assistance programs:
- State housing finance agencies: Every state has one; they administer various assistance programs
- Local/county governments: Many offer location-specific programs
- Nonprofit organizations: Housing nonprofits often provide grants or counseling
- HUD-approved housing counseling agencies: Free counseling and program guidance (call 800-569-4287)
Your lender should also be familiar with programs available in your area.
Loan Estimate and Closing Disclosure Documents
Two standardized documents help you understand and verify your closing costs: the Loan Estimate and the Closing Disclosure.
Loan Estimate
According to the CFPB, lenders must provide a Loan Estimate within three business days of receiving your mortgage application. This document includes:
- Loan terms (amount, interest rate, monthly payment)
- Projected payments over time
- Estimated closing costs broken down by category
- Cash needed to close
- Comparison information
Use Loan Estimates to compare offers from different lenders. The format is standardized, making comparison straightforward.
Closing Disclosure
The Closing Disclosure is a five-page document showing your final loan terms and closing costs. You must receive it at least three business days before closing.
Key elements include:
- Final loan terms
- Actual closing costs (compare to Loan Estimate)
- Summary of transactions
- Loan calculations
Comparing Documents
When you receive your Closing Disclosure, compare it line-by-line to your Loan Estimate. Most fees should match or be very close. Certain fees cannot increase, some can increase by up to 10%, and others have no limit.
Fees that cannot increase:
- Fees paid to the lender (origination charges)
- Fees for required services where the lender selected the provider
- Transfer taxes
Fees that can increase up to 10%:
- Recording fees
- Fees for services you could shop for but didn't
Fees with no limit:
- Fees for services you shopped for
- Prepaid items
- Initial escrow deposits
If costs have increased significantly or new fees appear, question them before closing.
Frequently Asked Questions
Most closing costs are due on closing day when you finalize your home purchase. However, some fees may be paid earlier—appraisal fees are often collected when the appraisal is ordered, and earnest money is deposited when your offer is accepted. At closing, you'll pay the remaining costs, typically via wire transfer or certified check. Your Closing Disclosure shows the exact "cash to close" amount needed.
In some cases, yes. FHA, VA, and USDA loans allow certain upfront fees to be added to your loan balance. Some conventional loan programs also permit this. However, rolling costs into your mortgage increases your loan amount, monthly payments, and total interest paid over the loan term. You'll also need sufficient equity or a low enough loan-to-value ratio to add these costs without exceeding program limits.
Some closing costs may be tax deductible, but not all. Points paid to lower your interest rate are generally deductible in the year paid (for a primary residence) or amortized over the loan term. Property taxes paid at closing are deductible if you itemize. However, most other closing costs—origination fees, appraisal, title insurance, and attorney fees—are not deductible. Consult a tax professional for guidance specific to your situation.
Several options exist if you're short on cash for closing costs. You can request seller concessions as part of your purchase negotiation. Closing cost assistance programs (grants, forgivable loans) are available through state and local agencies. Some lenders offer no-closing-cost mortgages with higher interest rates. Family members can gift funds for closing costs on most loan types. Finally, building an emergency fund before house hunting helps ensure you have adequate reserves.
For a quick estimate, multiply your expected loan amount by 2% (low end) to 5% (high end). For a more accurate estimate, research your state's average closing costs and transfer tax status. Once you apply for a mortgage, your Loan Estimate provides detailed projections. Online closing cost calculators from lenders and financial websites can also help, though actual costs depend on your specific situation and location.
Conclusion
Closing costs represent a significant but manageable expense in the home buying process. By understanding what these fees cover, who typically pays them, and how to reduce your share, you can approach closing with confidence and potentially save thousands of dollars.
Key takeaways for managing closing costs:
- Budget for 2% to 6% of your loan amount in closing costs
- Shop multiple lenders and compare Loan Estimates
- Negotiate on fees, seller concessions, and third-party services
- Review your Closing Disclosure carefully before signing
- Explore assistance programs if you need help covering costs
The better prepared you are, the fewer surprises you'll face at the closing table. As you continue your home buying journey, consider exploring our guides on mortgage rates and getting pre-approved to strengthen your position as a buyer.
Disclaimer: The information provided on RichCub is for educational purposes only and should not be considered financial, legal, or investment advice. We recommend consulting with a qualified financial advisor before making any financial decisions. RichCub may receive compensation through affiliate links or advertising on this site.
RichCub Editorial Team
Contributor
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