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What are closing costs?

Find out what to expect to pay on closing day

You are likely to pay closing costs on the day you close on your mortgage. These closing costs can be different depending on whether you are buying or refinancing a home, and how much you pay can be affected by the loan type you choose, your personal finances, the state where your house is located, and other factors. Your closing costs might include things like:

  • Application fee. This covers the cost of processing the loan request and could include the credit check and other administration fees.
  • Appraisal fee. This is paid to a third-party appraiser to determine the property value. A professional appraiser will come out to the home and evaluate its market value. This generally costs between $300 and $500 but it could be more depending upon the area, the complexity of the property, and the size of the house.
  • Attorney fee. This is paid to the attorney to review the financial documents prepared. Not all states require an attorney.
  • Credit report fee. A fee for pulling your credit report.
  • Home inspection. A professional inspector will come to the home and is tasked with uncovering any potential problems, such as a leaky roof, mold or structural issues.
  • Mortgage broker. If you used a mortgage broker, there may be a fee you have to pay at closing.
  • Origination fee. A fee to process your loan paperwork, which is typically about 1% of the loan amount or payoff.
  • Pest inspection. Some states and loans may require a pest inspection before the mortgage is approved. The cost of a pest inspection might average $100 according to Home Advisor.
  • Points. If your interest rate was locked with points, you will have to pay that amount at closing. One point is equal to 1% of the loan amount. You can also choose to buy a lower rate by paying points with some mortgages.
  • Pre-paid interest. The interest due between your settlement date and your first monthly payment.
  • Property insurance. This is paid to insure the property. The insurance amount depends on your provider and the size of the home. Insurance costs are typically added to escrow and collected each month as part of the monthly mortgage payment.
  • Property taxes. The tax amount would be prorated for the year. Like property insurance, this could also be included in the monthly mortgage payment as part of your escrow.
  • Recording fees. Local governments typically charge a fee to record transactions in public records.
  • Title search. This fee covers the search for any liens on the property and to help ensure the person selling is indeed the owner.
  • Upfront Mortgage Insurance Premium. If you choose an FHA loan, you will be required to pay an upfront premium on your mortgage insurance.
  • VA Funding Fee. If you choose a VA loan, you will need to pay the VA funding fee, although it can be rolled into your loan. This fee is used to support the government VA loan program.

How much are closing costs?

When you are buying or refinancing a home, you will want to plan to pay closing costs. Some closing costs you may need to pay in cash at closing and others you may be able to add to your loan amount. Here are some estimates of how much you might pay.

  • Conventional loan closing costs: Typically, you'll pay between 2% and 5% of the price of the home at closing with a conventional loan.
  • FHA loan closing costs: According to the U.S. Department of Housing and Urban Development, FHA loan closing costs average between 3% and 4% of the purchase price of the home. You will pay an upfront mortgage insurance premium as part of your FHA closing costs. This is equal to 1.75% of the base loan amount.
  • VA loan closing costs: VA closing costs can range between 2% and 5% of the home's price. These closing costs typically include the VA funding fee, though this fee can often be added to your mortgage balance.

Also check out our closing costs calculator to estimate how much you might pay when buy a home.

Are closing costs tax deductible?

Some closing costs may be tax deductible. For example, you may be able to deduct the cost of mortgage insurance premiums, property taxes, prepaid interest, points, or origination fees from your taxes. On the other hand, the cost of things like 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.

Who pays closing costs?

Most of the time homebuyers are responsible for paying their closing costs. Sometimes closing costs can be paid by the seller too. For example, some sellers may be willing to help pay closing costs in return for a higher sale price on their house. This means that instead of paying closing costs when sale of the house closes, you pay them over time as a part of your loan. The seller usually pays for real estate agent's commissions and may pay some taxes.

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. Visit the Housing and Urban Development (HUD) website to select your state and navigate to homeownership, then homeownership assistance for more information about what your state or city has to offer.

How to check your closing costs

Make sure you understand all your closing costs and check they are correct before you close on your new mortgage. You will see an estimate of your closing costs in the initial disclosures your lender will send you after you submit your mortgage application. When your loan is approved, you will receive a second set of disclosures (often called "Closing Disclosures") that will state exactly how much you will need to pay on the day you close on your mortgage.

Last reviewed and updated May 2023 by Freedom Mortgage Corporation.

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