How Much are Closing Costs on a House (and Who Pays Them)?

When you finance a home with a mortgage, your down payment isn’t the only sum of money you need to provide upfront. You’ll also have to pay closing costs, including loan and attorney fees, as well as other expenses.

If you’re a first-time homebuyer, knowing how to get a loan isn’t enough to prepare you for closing costs, which can be confusing and overwhelming. Here’s what you need to know about closing costs, including how much they are and who has to pay them.

What are closing costs?

Closing costs refer to the various fees that come with buying a home. These can include a loan application and origination fee, as well as appraisal and home inspection fees. You’ll also likely need to pay title and lawyer fees and a few months of property taxes and homeowners insurance upfront. Your lender will give you an estimate of your closing costs before you finalize the loan.

Homebuyers are responsible for many of these closing costs, but sellers have to cover some as well. It may be possible to negotiate for the seller to cover a more significant proportion of closing costs, though this is less common in a competitive market.

How much are closing costs?

Closing costs typically range from 3% to 6% of your total mortgage amount. For example, if you’re borrowing a $300,000 mortgage, you can expect to pay between $9,000 and $18,000 in closing costs.

According to ClosingCorp, a provider of residential real estate closing cost data, these states (and Washington, D.C.) had the highest and lowest average closing costs in 2021. Note that taxes are included.

Top 5 states with the highest closing costs (2021)

State	Avg. home cost	Avg. closing costs with taxes
Washington, DC	$769,351	$29,888
Delaware	$329,931	$17,859
New York	$538,102	$16,849
Maryland	$400,544	$14,721
Washington	$579,324	$13,927

Top 5 states with the lowest closing costs (2021)

State	Avg. home cost	Avg. closing costs with taxes
Missouri	$254,985	$2,061
Indiana	$233,584	$2,200
North Dakota	$243,312	$2,501
Wyoming	$352,788	$2,589
Mississippi	$268,416	$2,756

Taxes can make a big difference in these estimates. In Washington, D.C., for instance, the average closing costs without taxes are just $6,502, more than $23,000 less than the average cost with taxes included.

What is included in closing costs?

Here are some of the most common mortgage closing fees that come with buying a house.

Application fee

Some lenders charge borrowers a fee to process their loan application. This fee varies but may be $500 or less. It may include a credit report fee to check your credit score, which typically falls around $25.

Origination fee

Lenders also often charge a fee to prepare documents or work with a notary or attorney. A loan origination fee could cost about 1% of your mortgage amount. So, if you’re borrowing $200,000, you could expect to pay a $2,000 origination fee.

Prepaid interest

Some lenders require you to prepay some interest upfront to cover the charges that accrue between closing and your first monthly mortgage payment. The amount will depend on your interest rate and loan amount.

Rate discount points

If you want to lower your interest rate, you might be able to pay discount points ahead of time. Lowering your rate by one point will usually cost you 1% of your loan amount. That means if you’re borrowing $200,000, it would cost $2,000 to lower your rate by 1%. Whether or not purchasing discount points is worth it is one of the questions to ask your lender.

Mortgage insurance

If your down payment is less than 20% on a conventional loan, you’ll have to pay private mortgage insurance (PMI). PMI is a monthly charge, but you might need to cover the first month’s mortgage insurance premium when you close. Expect to pay somewhere around $30 to $70 each month for each $100,000 you borrow.

USDA, VA, and FHA loan fees

Government-sponsored loans can help you buy a house with a small (or no) down payment. However, each loan program comes with guarantees or funding fees that you’ll need to pay at closing.

For a USDA loan, your funding fee will be 1% of your loan amount. VA loan funding fees range from 1.4% to 3.6%, depending on the size of your down payment and whether it’s your first time using a VA loan. Finally, FHA loans come with a funding fee of 1.75%.

Appraisal fee

Before you can close on a home, your lender must send a professional appraiser to determine the property’s value. If the value is lower than the agreed-upon purchase price of the home, you’ll need to renegotiate or cover the difference. Appraisal fees vary but can cost somewhere between $300 and $600.

Attorney fees

Some states require you to hire an attorney to close on a home. Your attorney will be present at closing and coordinate the documents you need for the title transfer. Fees will vary depending on where you live and how many hours the real estate attorney works for you but typically fall somewhere between $500 and $1,500.

Title search fee

While costs vary, you could also expect to pay somewhere between $200 and $400 for a title search, which ensures that the seller truly owns their home and doesn’t have any liens, bankruptcies, or unpaid back taxes standing in the way of the sale. The title search may be completed by your real estate attorney or an insurance title company.

Homeowners insurance

Many lenders require that you buy homeowners insurance before closing. This insurance protects the property in the case of damage or vandalism. You often need to pay a year’s worth of insurance premiums upfront, which you can estimate as $35 per month for every $100,000 in home value. So, if your home is valued at $300,000, you would pay about $1,260 at closing, which will go into an escrow fund.

Property taxes

You might be required to pay anywhere from two months to a full year’s worth of property taxes upfront. The cost will vary depending on your location and the value of your home. You can usually find information on historical property taxes on a real estate listing site.

According to a 2022 analysis by WalletHub based on U.S. Census Bureau data, the average American pays $2,471 in property taxes each year. If you had to cover two months of property taxes upfront, that would equate to about $412.

Homeowners association transfer fee

If you’re buying a home that belongs to a homeowner’s association (HOA), you might need to pay a fee to transfer membership from the seller to you. This amount varies, and it’s sometimes covered by the seller.

Escrow funds

Some of the closing costs you pay will be put into escrow as reserve funds. Your lender might draw on your escrow account to make payments on your behalf. You’ll often put a certain number of months’ worth of expenses into escrow at closing to cover property taxes, homeowners insurance, PMI, and other premiums. The escrow fee may cost between $300 and $700 or more and is typically based on your loan amount or purchase price.

Who pays closing costs?

Buyers are responsible for most of the closing costs discussed above, but sellers must cover some costs as well. Here are some closing costs for sellers:

• Escrow fees: Sometimes, sellers cover half of the amount it costs to use an escrow account. As mentioned, this fee often ranges between $300 and $700 but may be more depending on your loan amount or the purchase price of the home.
• Real estate agent commission: If you’re selling a home, you’ll usually pay a commission to your seller’s agent and the buyer’s agent. This often costs between 5% and 6% of the home sale.
• Transfer taxes: Most states charge a tax to transfer a property from the seller to the buyer. These fees are usually based on the purchase price or assessed value and may be covered by the seller, the buyer, or both.
• Title insurance: This insurance protects the seller and the lender against any title issues, such as someone else claiming rights to the property. This could cost 0.5% to 1% of the home loan.
• Attorney fees: Sellers usually only cover this cost if they bring their own attorney to closing.

If the market is slow, a seller might also offer to help pay for some of the buyer’s closing costs. These closing credits, also known as seller concessions, will be part of the sale agreement.

FAQs

Bottom line

Your specific closing costs will vary depending on your loan amount, the value of your home, and state taxes and laws. In a slow market, you might also be able to negotiate with the seller to cover some of your costs.

Your lender will send you a closing disclosure and loan estimate at least three days prior to closing so you’ll know what to expect before you sign any paperwork. An experienced, reliable lender can also help the process run smoothly while also offering competitive mortgage rates.

If you’re just beginning the home-buying process, check out our recommendations for the best mortgage lenders.