Whether buying or selling a home or simply refinancing your existing mortgage, it is critical to understand the closing costs of this often complicated transaction. Some closing costs can be negotiated between buyers and sellers. You can shop around for some services required for closing, while your lender will require specific providers for other services.
Understanding closing costs will give you a clear picture of what you will be responsible for paying, whether you are the buyer or the seller. You’ll also know when you can shop around for a cheaper service, saving you money at closing.
Here is a guide to everything you need to know about closing costs.
Key Takeaways
|
What Are Closing Costs?
Closing costs are the fees and expenses of finalizing a real estate transaction. These fees are usually paid the day the sale or refinance is completed.
If you are buying a home or refinancing an existing mortgage, you can expect to pay loan origination fees, appraisal, title, and recording fees, among others. If you are selling your home, you will often pay fees such as transfer taxes, outstanding liens, and attorney or escrow fees, among others. Each side in a real estate sale will pay their own agent commissions.
The total closing costs depend on the price of the home, local taxes and regulations, and the terms of the sale. Both sides should review disclosures for specifics on what will be due at closing.
| NOTE: Closing costs can vary widely from state to state, even county to county. They can be affected by market conditions and sales timelines. The cost ranges provided in this article should be used as a general guideline for the costs you can expect to pay at closing. Check with your lender or your real estate agent for a more accurate picture of the costs you may incur. |
Closing Costs for Buyers
If you are buying a home, you will be responsible for certain fees and expenses at closing. When you get the loan estimate from your lender or agent, you will receive an estimate of these fees. The loan estimate must be received within three days of applying for a loan.
These fees will be finalized in the closing disclosure, which must be received no later than three days before closing.
Many of the fees here are negotiable. Depending on market conditions, you may be able to negotiate that the seller pays some of these fees at closing. However, the list below are the typical fees you can expect to be responsible for at closing. 
The included example fees may not completely reflect the market conditions in your area. You will get an official estimate of these costs when you get your loan estimate, and you should check with your lender or agent if you have any questions.
- Buyer’s real estate agent commissions: While sellers used to cover the cost of all agent fees, this changed in 2024. Now, the buyer is responsible for paying their agent commissions. In addition, they must sign a contract with their agent that clearly defines the agent’s commission before shopping for a home. This negotiable fee can be a percentage of the home’s sales price, a flat rate, or even an hourly fee.
- Loan origination fee: This covers the lender’s administrative costs for mortgage processing. Origination fees are typically between 0.5% and 1% of the loan amount. For example, if you borrow $200,000, a 1% origination fee would be $2,000.
- Appraisal fee: The appraisal determines the home’s market value and ensures it aligns with the purchase price. Ensuring the appraised value and purchase price align prevents risk to both the lender and the buyer. Appraisal fees typically cost between $300 and $500, depending on property size, value and location.
- Home inspection fee: While your lender may not require this, it is a good idea to get a home inspection to make sure there are no structural issues with the home. A home inspection can cost between $300 and $700.
- Lender’s title insurance/title search fee: Title insurance protects both the buyer and the lender from potential disputes over property ownership. A title search verifies the property’s legal ownership and checks for outstanding liens that must be satisfied at closing. These typically cost between $500 and $1,000 combined.
- Escrow/prepaid costs: Buyers often must prepay expenses, including property taxes, homeowners insurance, and prepaid interest. Taxes cover the first few months after the sale, insurance either covers the annual cost of the policy or an advance into the escrow account, and interest covers the amount accrued between the closing date and the first payment.
- Recording fees: The completed mortgage must be recorded with the local government, and this service has a fee. The fee generally ranges between $100 and $250, depending on the length of the mortgage.
- Private mortgage insurance (PMI): If the borrowed amount exceeds 80% of the home’s value, the lender will require PMI to protect against default. The first month of PMI is sometimes included in the closing costs.
- Additional fees: Other fees, such as credit report fees, flood certification fees, and incidental charges, may be included at closing.
Closing Costs for Sellers
For sellers, there will be certain closing costs that will be deducted from the proceeds of the sale. Under certain market conditions, sellers may also pay some of the buyer’s closing costs. However, listed below are the most common seller closing costs.
- Seller’s real estate agent commissions: The seller is still responsible for their agent fees. However, since they don’t have to pay the buyer’s fee, the agent commission is reduced to around 3% of the sales price. For example, if the sales price is $200,000 and the commission is 3%, the fee would be $6,000.
- Transfer taxes: State and local governments may charge a transfer tax when property ownership changes. The tax charged is a percentage of the sales price and varies by location.
- Owner’s title insurance: The seller may pay for the owner’s title insurance, which protects the buyer against potential ownership disputes. This costs between $500 and $1,000.
- Outstanding liens or mortgage payoff: When the property is sold, any liens against it must be satisfied. Most commonly, this will be an existing mortgage. However, any additional liens filed against it, including any unpaid property taxes, must also be satisfied.
- Property repairs: If the buyer negotiates that the seller pays for repairs to the property, the cost may be included in closing costs. The seller may also pay for them before closing.
- Attorney or escrow fees: Some states require the seller to hire an attorney to oversee the closing process. The cost generally falls between $500 and $1,500, depending on the complexity of the sales transaction.
- Homeowners Association (HOA) transfer fees: If the property is in an HOA, the seller will cover the transfer fee. If it is a competitive market, the buyer may be asked to pay this fee instead.
Closing Costs for a Refinance
Even though the primary focus of this guide is for buyers and sellers, closing costs are also something that people refinancing their current mortgage need to know about. Many of these costs are the same as the ones the buyer and seller face above. Here are some closing costs you can expect when you refinance your mortgage, with explanations of any unique fees.
- Loan origination fees
- Appraisal fees
- Title search/title insurance
- Recording fees
- Prepaid interest
- Escrow account funding: If your lender requires you to escrow property taxes and homeowners insurance, you may need to deposit funds to establish or replenish the account.
- Mortgage points: You can pay mortgage points upfront to get a lower interest rate, reducing long-term interest expenses.
- Mortgage payoff fee: The lender may charge a processing fee for a mortgage payoff or a fee to give a new lender the payoff information. These fees are usually small, ranging between $25 and $50.
- Application and underwriting fees: Some lenders charge for a mortgage application and for the service of determining your eligibility for a new loan. These fees can range between $300 and $500.
Which Services Can You Choose?
For some services, the buyer, seller or refinancer can choose the provider, which can help reduce closing costs. For other services, the lender decides the provider. The provider for those services is not negotiable.
Services the Buyer or Seller Can Choose The Provider
- Title insurance/title services
- Home inspection services
- Homeowner insurance
- Survey services
- Pest inspection services
- Closing attorney/settlement attorney
Services the Lender Will Choose the Provider
- Appraisal services
- Credit report provider
- Flood certification
- Tax services
- PMI provider
How to Reduce Closing Costs
While closing costs are inevitable, there are some things you can do to reduce those fees. In addition to shopping around for the services listed in the section above, here are other ways to reduce closing costs.
- Negotiate with the other party: Depending on market conditions, the buyer or seller may agree to pay additional closing costs to reduce them for the other party. For example, in a buyer’s market, the seller may agree to cover more costs to close the deal. There are limits to the amount of seller concessions depending on the loan type and the down payment amount. Check with your lender for limits before discussing concessions.
- Ask for lender credits: Lenders may offer credits to reduce closing costs in exchange for a slightly higher interest rate. This makes sense in a low-rate market or if the buyer is short on cash to close the deal.
- Negotiate agent commissions: While the buyer negotiates their agent commission before beginning the homebuying process, the seller can also negotiate lower commission rates, especially in a high-demand market.
The Closing Disclosure and Primary Settlement Statement
Buyers or people refinancing their mortgage will receive closing disclosures no later than three days prior to closing the loan. The buyer should review the closing disclosure, make sure it aligns with the estimates provided in the loan estimate, and contact the lender or their agent if there are any issues.
The seller should request a preliminary settlement statement before closing as well to make sure all charges are accurate.
Bottom Line
Closing costs are critical to a property sales transaction and a mortgage refinance. It is important that all parties understand what charges they are responsible for and the cost of services provided prior to the day of closing. Understanding closing costs will make the completion of the mortgage transaction easier to navigate.
