Buying a home is exciting. But the closing costs? Not so much.
They can sneak up on you if you’re not prepared — sometimes adding thousands of dollars to what you thought you’d be paying. And unlike the down payment, these costs can feel confusing because they cover so many different fees, from lender charges to taxes to insurance.
Most buyers underestimate how much they’ll owe at closing. Some don’t find out until they’ve already locked in a contract or picked out their dream home — and by then, it’s too late to adjust the budget.
But here’s the good news: once you understand what closing costs include (and how to estimate them), you can plan ahead and even find ways to lower them. In this guide, we’ll break down what you’ll pay, who covers which costs, and how to avoid common mistakes that could cost you thousands.
What are closing costs?
Closing costs are all the fees and expenses you pay when finalizing a home purchase. These costs cover services from your lender, local government, real estate professionals, and insurance providers. They are separate from your down payment and typically range from 2% to 6% of the home’s purchase price.
Closing costs can include:
- Lender fees – Charges for processing and underwriting your mortgage
- Appraisal and inspection fees – Costs to assess the home’s value and condition
- Title search and insurance – Ensures the property has a clear title
- Property taxes and homeowners insurance – Often collected upfront
- Government fees – Recording fees and transfer taxes
- Mortgage insurance – If your down payment is less than 20%
These expenses can add up quickly, so it’s important to factor them into your homebuying budget early.
Who pays closing costs: buyer or seller?
Both the buyer and seller have closing costs, but who pays what depends on the purchase agreement and market conditions.
Buyers typically pay for:
- Loan application and origination fees
- Appraisal and home inspection
- Title search and insurance
- Escrow deposits for taxes and insurance
- Prepaid interest and mortgage insurance
Sellers usually cover:
- Real estate agent commissions
- Transfer taxes and recording fees
- Homeowners association (HOA) transfer fees, if applicable
In some cases, buyers and sellers negotiate who covers certain costs. For example, in a buyer’s market, a motivated seller might agree to pay part of the buyer’s closing costs to help complete the sale.
Comprehensive List of Fees Associated with Mortgage Closing Costs
Mortgage closing costs can be broken down into a few different categories: lender fees, real estate fees, and mortgage insurance fees.
Lender Fees
These fees may vary depending on the lender you choose. Here’s a basic rundown of each closing cost to give you an idea of what you can expect.
- Application fee: Covers processing your mortgage loan application and obtaining your credit report.
- Attorney fee: In some states, an attorney must review the mortgage paperwork; fees vary and can be hourly or a flat rate.
- Broker fee: If using a mortgage broker, they typically charge a commission, usually between 1% and 2% of the home’s purchase price.
- Origination fee: The origination fee compensates the lender for administrative tasks and is typically around 1% of the loan amount.
- Discount points: Paying points upfront can lower your interest rate; each point equals one percent of your loan amount.
- Prepaid interest: Covers the interest that accrues between the closing date and the first mortgage payment.
- Recording fee: Charged by local governments for recording the mortgage documents; it covers the administrative costs of maintaining public records.
- Underwriting fee: Charged for the underwriter’s services in evaluating and preparing your loan; includes costs like due diligence and legal fees.
Real Estate Fees
Real estate fees are related to costs surrounding the property itself. Some are one-time fees, while others are recurring.
- Appraisal fee: Necessary to assess the market value of the home. Costs vary, but typically around $500 to $600, payable before the appraisal or at closing.
- Property tax: Generally an annual or biannual payment. Most lenders require at least two months’ worth pre-paid into an escrow account at closing.
- Homeowners’ insurance policy: An annual premium required for a home loan. The first year’s premium is often paid at closing, with subsequent payments included in your mortgage.
- Title search and insurance: Ensures the property is lien-free. Lender’s title insurance protects the lender, while owner’s title insurance safeguards the buyer.
- Transfer tax: Imposed by governments when a property is sold, usually a percentage of the sale price.
- HOA fees: For properties in a homeowners association, this may include a transfer fee and potentially the first year’s annual assessment.
Mortgage Insurance Fees
When you pay less than 20% of your home purchase price as part of your down payment, you’re usually required to pay mortgage insurance. Your private mortgage insurance (PMI) premium is typically assessed as a monthly fee within your mortgage payment. However, you may also have some costs at closing.
- Upfront mortgage insurance fee: Depending on your loan type and lender, you may have to pay an additional application fee for a loan with mortgage insurance. Additionally, some loans require that you pay a one-time fee at the time of closing on top of your annual fee throughout the mortgage.
- Government-backed loan fees: If your loan is from the FHA, USDA, or VA, then you may have extra mortgage insurance fees if your down payment is under 20%. FHA loans require an upfront mortgage insurance premium (MIP) of 1.75% and a monthly fee. The VA and USDA don’t charge mortgage insurance, but instead have guarantee fees. VA fees fall between 1.25% and 3.3% while USDA fees are a flat 2%.
How much are closing costs?
Most first-time homebuyers are surprised to learn that closing costs can total between 2% and 6% of the home’s purchase price. The exact amount depends on the home’s price, the lender’s fees, taxes, and whether you’re paying for extras like mortgage insurance.
Here are some examples:
- On a $200,000 home – Closing costs might range from $4,000 to $12,000
- On a $300,000 home – Expect between $6,000 and $18,000
- On a $500,000 home – Costs could run from $10,000 to $30,000
These estimates do not include your down payment.
Keep in mind that lender fees, title insurance, property taxes, and insurance premiums can vary widely depending on your location and loan type. To get a more accurate number, ask potential mortgage lenders for a loan estimate early in the process. Many online closing cost calculators can also give you a ballpark figure based on local tax rates and typical fees.
Can you negotiate closing costs?
Yes, many closing costs can be negotiated. While some fees are fixed, others may be reduced or even eliminated with the right strategy.
Here’s how to lower your closing costs:
- Shop around for lenders – Compare loan estimates from multiple mortgage lenders. Fees like application and origination charges can vary.
- Ask for lender credits – Some lenders offer credits that reduce your closing costs in exchange for a slightly higher interest rate.
- Negotiate with service providers – You can often choose your own title company, home inspector, and insurance provider. Compare prices and ask for better deals.
- Request seller concessions – Depending on market conditions, you may be able to negotiate for the seller to pay part or all of your closing costs.
- Review the Closing Disclosure – Before closing, review this document carefully. Question any unexpected or inflated fees.
Negotiating closing costs takes some effort, but it can lead to meaningful savings, especially on higher-priced homes.
Can you roll closing costs into a mortgage?
In some cases, you can add your closing costs to the mortgage loan rather than paying them upfront. This depends on the loan type, property value, and lender rules.
Here’s when it might be possible:
- FHA and USDA loans – Often allow rolling some or all closing costs into the loan.
- VA loans – Permit certain fees to be financed, depending on eligibility.
- Conventional loans – May allow rolling costs into the loan if the home appraises high enough and your debt-to-income ratio supports the larger loan.
If rolling in the costs increases your loan amount, it will also increase your monthly payment and the total interest you pay over time. The home must also appraise for enough to cover both the purchase price and the added costs.
Another option is to negotiate a higher purchase price in exchange for the seller paying your closing costs. For example, instead of offering $200,000, you might offer $205,000 with the seller covering $5,000 in closing fees.
How to Pay Closing Costs
When closing day arrives, you’ll need to cover the full amount of your closing costs before the sale can be completed.
Most buyers pay closing costs using:
- Cashier’s check – A certified check issued by your bank.
- Wire transfer – A direct transfer from your bank to the settlement company.
Personal checks and cash are rarely accepted for closing payments.
Check with your lender or settlement agent well before the closing date to confirm the exact amount you’ll owe and the payment method they require. This will help you avoid last-minute delays or surprises.
Final Thoughts
Closing costs can feel overwhelming, especially if you’re buying your first home. But once you know what fees to expect, who pays them, and how much they might add up to, you can plan ahead and avoid surprises.
Some closing costs are set, but others can be negotiated or even rolled into your mortgage in certain situations. Shopping around for lenders, comparing service providers, and asking the seller to contribute can all help lower your upfront expenses.
By factoring in closing costs from the start, you’ll be ready to handle them with confidence — and focus on what really matters: getting the keys to your new home.
Frequently Asked Questions
What happens if my closing costs are higher than expected?
If your closing costs come in higher than estimated, you can ask your lender for an explanation and review the Closing Disclosure for errors. You may also renegotiate with the seller or explore lender credits to cover some of the extra costs.
Can I use gift money to pay closing costs?
Yes, many loan programs allow gift money from family members to cover closing costs. Your lender will likely require a gift letter confirming that the funds don’t need to be repaid.
Are closing costs tax-deductible?
Some closing costs may be tax-deductible, such as mortgage points used to buy down your interest rate. However, most fees like loan origination and title charges are not deductible. A tax professional can help you determine what applies.
Do closing costs vary by state?
Yes, closing costs can vary widely depending on your state or even your city. Local taxes, lender fees, and title charges are often higher in certain areas, so it’s important to get estimates specific to your location.
Can I negotiate closing costs after signing a purchase agreement?
Yes, but it can be more difficult. If new or higher fees appear after you’ve signed, you can challenge them or negotiate for seller concessions. However, it’s easier to negotiate closing costs earlier in the process.
