Closing Costs: What They Are and What You Can Expect to Pay
Key Takeaways
- Closing costs are typically 2%-6% of the total loan amount.
- Closing costs cover third-party services, insurance requirements, and added fees–not your down payment.
- The amount owed in closing costs can vary by factors like loan type, lender requirements, and location.
- Buyers may be able to reduce closing costs by comparing lenders, shopping for services, or negotiating seller concessions.
When you’re looking to purchase a home, it’s easy to prioritize the down payment as one of your biggest financial responsibilities, but this is only part of the upfront cost. You’ll also need to budget for closing costs before finalizing the purchase.
Both buyers and sellers are typically responsible for paying some upfront costs in real estate transactions. The amount varies depending on factors such as the home's price and location, the type of mortgage, and the lender.
Understanding what these costs include, when to pay them, and how they may vary can help you be more prepared at the closing table.
What Are Closing Costs?
“Closing costs” is the umbrella term for some of the "smaller” fees and expenses that are necessary to get a mortgage, usually amounting to 2%–6% of the total loan amount. To finalize the transaction, buyers will need to pay for services, title appraisals and inspections, coupled with attorney fees, specific lending fees, and more.
Closing costs differ from down payments, which go toward the home purchase price, in that they cover the services and fees needed to complete the sale. Understanding these costs will allow buyers to more accurately estimate the cost to buy a home.
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How Much Are Closing Costs?
Average closing costs are typically 2% to 6% of the loan amount, but this can vary depending on factors such as the type of mortgage you choose, whether you’re buying a home or refinancing, discount mortgage points, and lender policies.
Here’s how much mortgage closing costs usually are for different loan types:
- Conventional loans: Closing costs typically range from 2% to 6% of the home’s purchase price.
- FHA loans: FHA loan closing costs average between 2% and 6% of the home's purchase price. FHA loans also require an upfront mortgage insurance premium equal to 1.75% of the base loan amount.
- VA loans: VA closing costs can range between 2% and 6% of the home’s price. These closing costs typically include the VA funding fee, though it’s often financed into the mortgage balance.
Closing costs can be paid up front or added to the loan amount in some cases. Remember, adding closing costs to the loan balance means paying interest on them, which makes them more expensive over time.
Lenders will provide a loan estimate of these closing costs so that buyers and sellers can understand exactly how much they’re paying to for the transaction and what they may need on closing day.
Pro Tip
Calculating your closing costs ahead of time can help you know you can comfortably afford the home you’re looking at. Check our home affordability calculator to break down the numbers.
Common Closing Costs When Buying a House
Closing costs can vary based on factors like the home’s price and location, your loan type, and lender fees. Here are some common costs you may have to plan for:
For a customized estimate, use our closing costs calculator. The finalized list of your closing costs will be detailed in the closing disclosure provided by your lender prior to closing. Ask your lender to review estimated closing costs with you as you approach closing.
Who Pays Closing Costs?
Most of the time, homebuyers are responsible for paying their closing costs and fees.
Sometimes, however, the seller can pay closing costs using seller concessions. For example, some sellers may be willing to help pay closing costs in return for a higher sale price on their house. The seller typically also pays both the buyer’s and seller’s real estate agent commissions and covers the cost of property taxes and any HOA fees for the period they owned the home prior to the sale.
Local customs may also dictate that a seller usually covers other costs. For example, in some Florida counties, it’s common for the seller to cover title insurance costs even though the insurance protects the buyer and lender.
Ways to Lower Your Closing Costs
If you are buying a home, you may have options to lower your closing costs and fees. Here are some potential ways you could reduce what you pay up front.
- Closing cost assistance: Some states or counties offer programs or grants that help with the cost of closing on a home. These are often called homebuyer assistance programs and are very similar to down payment assistance programs. You can visit the Housing and Urban Development (HUD) website to learn more.
- Negotiate with the seller: A seller may be willing to cover some of your closing costs with seller concessions.
- Find out what services you can shop around for: Some closing costs are set in stone, such as the local government’s recording fee. But there are others you can shop around for, such as home inspections and title services. When you have the option to choose a service provider, always compare prices to make sure you pay a reasonable cost.
- Compare mortgage lenders: Different lenders charge different amounts for things like origination and underwriting fees. Take this into account when deciding which lender to borrow from, but be sure you are making a full comparison and not basing your decision on one or two specific costs.
Mortgage Closing Cost FAQs
Here are some additional commonly asked questions about mortgage closing costs.
When Do You Pay Closing Costs?
Upfront closing costs, not including any monthly responsibilities like property insurance or property taxes, are paid at the end of the transaction. Once the title is transferred from seller to buyer, closing costs can then be paid to finalize the purchase.
What Would Closing Costs Be for a $400,000 House?
Closing expenses often make up 2%–6% of a home, so for a 400,000 home, buyers can expect to pay roughly between $8,000 and $20,000 in closing costs. Please note that this number can significantly vary based on factors like loan type, lending fees, location of the transaction, and whether buyers choose to use discount points.
Are Closing Costs Tax-Deductible?
Some closing costs may be tax-deductible. For example, you may be able to deduct the cost of prepaid property taxes, prepaid interest, and points from your taxes.
On the other hand, the costs of home appraisals, inspections, title insurance, and HOA fees are usually not tax-deductible. Consult a tax advisor for information regarding the deductibility of interest and charges.
Final Thoughts: Taking the Next Step Toward Your New Home
Closing costs are a key financial component of purchasing a new home that generally bundles lender fees, third-party services, taxes, insurance, and other costs into one expense paid at or before closing. The exact amount a buyer will owe in closing costs can vary, but will likely amount to 2%–6% of the total loan amount.
Understanding these costs in advance can help you budget more confidently and identify opportunities to reduce what you pay with your lender. When you’re ready to move forward, get prequalified online to begin budgeting for your home purchase.
Christine Rakoczy has been a financial writer since 2008, contributing to major publications, including Credit Karma, CBS MoneyWatch, WSJ, and Forbes Advisor. While her special focus is diving deep into mortgages, Christine has extensive experience with all types of financial topics.
In addition to writing for online articles, Christine has also taught business administration courses at a career college and has served as a subject matter expert on numerous business and legal courses.
Christine earned her JD from UCLA School of Law in 2008 and has a BA in English, Media, and Communications, with a Certificate in Business Administration from the University of Rochester.
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