When you scraped together enough money for the down payment, you thought you were all set to buy a house. Then you found out about closing costs.
Closing costs are fees charged by the lender and other third parties that you pay when you sign the loan. While you’re signing a not-so-small hill of paperwork, checks are flying across the room. And the fees are rising. From 2021 to 2023, median closing costs grew by more than 36%, according to the Consumer Financial Protection Bureau.
This is the ultimate guide to closing costs, from each type of fee to how much you can expect to pay.
Read more: How much money do I need to buy a house?
In this article:
Lender fees are among the most important fees to shop before you get to the closing table. They’re a long list of charges and some of the most expensive you’ll pay.
You may not see every single fee listed — and some may be combined. For example, a lender may roll its application or underwriting fee, or both, into their origination charge.
Let’s break the mortgage lender fees down one by one.
Dig deeper: Mortgage lender fees — How they differ from other closing costs
In marketing pitches, lenders practically beg for your business. Then, they charge you a fee to apply for a loan. It’s like buying a ticket for the privilege of doing business with them. And if they reject your application, you’ll still pay the fee — thank you very much.
Not all lenders charge an application fee, so put that on your list of things to look out for. If you are charged, it’s likely to be a few hundred dollars.
Read more: What is a mortgage application fee, and do you have to pay it?
Mortgage lenders have you cover the cost of pulling your history from a credit reporting bureau. The CFPB put credit report fees on its list of “junk fees,” saying recent expenses have risen by 25% to 400%.
Credit report check fees for joint applicants have traditionally been under $50. However, according to one industry representative, some lenders are charging as much as $100 to $150.
You cannot shop credit reports or negotiate this fee.
The origination fee is one of the most expensive single fees among all closing costs. Typically 0.50% to 1% of the loan amount, it is one charge you can negotiate with your lender. And it’s worth the time and effort, considering 1% of a $350,000 mortgage is $3,500.
However, you only want to see if you can get an origination fee lowered or completely eliminated once you have a solid interest rate offer from the lenders you are price shopping. Otherwise, they might reduce your origination fee and raise your interest rate to maintain a profit margin.
Dig deeper: What is a mortgage origination fee?
A processing fee is another nuisance charge you can attempt to negotiate off the list of closing costs. Lenders can charge whatever they want since it is not a singular fixed cost. If you see a processing fee on your Loan Estimate (which we’ll cover later), it could be hundreds of dollars.
Underwriting is the term given to the process of determining if a loan application will be approved. It is the cost of doing business if you are a mortgage lender. So, charging an underwriting fee is another one of those “it could be anything” closing costs. Realtor.com estimates underwriting fees could range from $400 to $600. That’s a guess as good as any, we suppose.
Read more: How the mortgage underwriting process works
Now to the closing costs that make more sense. These third-party fees are for taxes, insurance, or vendors who provide services — most of which are required in the issuance of a mortgage. Some fees are from providers the lender chooses and cannot be price-shopped.
Depending on the type of loan, such as FHA, VA, or conventional, some fees are set by mortgage program guidelines and are not negotiable. That can include mortgage insurance.
Others are chosen from a list of approved vendors that you can compare to find the lowest cost. The official Loan Estimate you receive from each lender will specify the services you can and cannot shop for.
An appraisal is an assessment of the home by an independent, third-party professional who puts together a written opinion of the property value. You want the appraised value to come back equal to or greater than the price shown on your purchase contract. If an appraisal is lower than the offer price, you’ve got some decisions to make. One choice is to renegotiate the asking price with the seller. Another is to walk away from the contract.
According to the National Association of Realtors, the typical appraisal fee was $500 in both 2022 and 2023. You cannot shop for or negotiate the appraisal fee.
Read more: Home appraisal — how it works and how much it costs
While an appraisal assesses the property’s value, an inspection looks at the house’s condition so you know what you’re signing up for in buying the property. A good inspector will check the home’s systems, foundation, and structure — everything.
If your contract contingency requires a satisfactory inspection, you can have the seller address any issues or back out of the purchase without a financial penalty if the house has major problems.
Inspections cost around $300 to $500. You can shop for this service, though the lender will likely have a list of approved providers.
Dig deeper: Your home inspection checklist
Property surveys aren’t required by all lenders; however, they’re another professional service that you may want to have on file in case of future disputes. Land boundaries come into play when fences are erected, or additions expand your home’s footprint.
Survey costs can vary widely, from hundreds to thousands of dollars, depending on your property’s size and location. It’s another service that you can shop for to find the best price.
Read more: Property survey — process, costs, and how to read the report
This is another closing cost that you may or may not see, according to where you live and the laws in your state. The role a real estate attorney takes in purchasing a house also varies. They may simply review documents for you before closing or join you at the table.
In the first case, you’ll likely pay an hourly fee. In the latter, it could be a flat fee. Attorney fees can range from several hundred to thousands of dollars, and a real estate lawyer is another provider you can choose yourself.
Dig deeper: How much are real estate attorney fees, and what do they cover?
The real estate agent fee will probably be the most significant amount of money you spend at closing, though it won’t be included on your Loan Estimate’s list of closing costs. But, no doubt, it gets paid.
With the structure of real estate agent commissions changing, this fee can be paid in several ways. The seller may assume most of the commission costs, or perhaps the commission will be divided equally. However the negotiations play out, the seller’s and buyer’s agent commissions will be deducted from the sales proceeds. It’s cut right off the top.
The buyer’s share can be anywhere from $0 — and higher. You will know how much you’ll pay before closing because that was negotiated weeks before.
Learn more: How do real estate agent fees work?
Noting an ownership transfer on official government records triggers a recording fee. Filing the real estate paperwork with a county clerk’s office protects the buyer and the seller by providing a record of ownership.
Recording fees vary widely, ranging from less than $50 to over $100.
Dig deeper: How recording fees work and how much they cost
Title search and insurance fees
The title to a property proves ownership. A title search involves courthouse research of a property and the history of ownership transfers. Without a title search, a buyer may be shocked to find out, sometimes years later, of a “defect.” That’s an issue impacting a claim to ownership.
One example: Someone used the property as collateral, and because the debt was unpaid, a lien was filed. Now, the new owner has inherited the problem. Many defects can arise over the possible decades of ownership history. Lenders want to be sure a property history is clear to sell.
There are two types of title insurance: lender’s title insurance and owner’s title insurance. A mortgage lender requires title insurance, and owner’s insurance is a good option (but not mandatory) for the buyer. It protects the policyholder from any past title issues uncovered in a title search.
The cost of a title search can be a few hundred dollars. The premium for title insurance is based on a property’s value and varies widely. You can shop for both.
Learn more:
Some states and municipalities levy a tax to change a home’s ownership. The transfer tax is listed in the “Other Costs” of the Loan Estimate. This is another fee that is hard to estimate without location information. In fact, some states don’t charge a transfer tax.
If you live in a jurisdiction that levies a transfer tax, it can be as low as under $2 — to hundreds of dollars. And since it’s a tax, it goes without saying: You can’t negotiate it.
Dig deeper:
Escrow fees include several charges, which are included in a section called “Initial Escrow Payment at Closing” on the Loan Estimate.
An escrow is a third-party holding account where a deposit is made at closing — and portions of your monthly payment are collected for payments that will be issued later. Not all lenders require an escrow account.
Read more: How does escrow work when buying a home?
Common costs held in an escrow account include:
Insurance on your house is a crucial expense that protects what many households consider their largest asset. Lenders require it because the house is used as collateral for the mortgage they issue.
Premiums will depend on the value of your home and the coverage you choose. Insurance.com estimates that the annual premium on a $300,000 home with a $1,000 deductible would amount to $2,601.
Dig deeper: What homeowners insurance covers and how much you’ll pay
You buy mortgage insurance not because you want to but because lenders may require it to qualify you for a home loan.
On conventional loans, private mortgage insurance comes into play when you make a down payment of less than 20%. FHA and USDA loans require mortgage insurance up-front and as part of your monthly payment for the life of the loan.
VA loans have a similarly funded guarantee, but it’s not called mortgage insurance — it’s known as a VA funding fee. It’s charged only at the time of closing.
Learn more:
Property taxes are a primary funding tool for local governments and school districts. It pays for police and fire protection, public schools, and infrastructure. Maybe that will make you feel better when you see how much you pay. Maybe?
Read more: How to calculate and pay your property taxes
Not to make a long list longer, but there are additional closing costs that may appear on your Loan Estimate. Here are some of the most common.
You may opt to use a mortgage broker to find a lender. Mortgage brokers are independent, third-party providers who work with a stable of lenders. Instead of you shopping each lender yourself, the broker reviews lending options and presents recommendations.
Dig deeper: What mortgage brokers do and how much they cost
In some cases, you may choose to prepay interest with discount points for a more favorable mortgage rate for the life of the loan. This decision is made after calculating the costs and benefits.
Another scenario might involve a mortgage lender or home builder offering a buydown for a period of time. This would result in a temporary rate reduction. For example, a 2-1 buydown would step down your interest rate for two years, and in the third year, the rate would reset to the prevailing loan rate.
In these cases, you will see the discount points or buydown noted on your Loan Estimate.
Learn more:
Some subdivisions have governing boards that enforce neighborhood rules and standards and collect dues for common-area maintenance. A homeowners’ association transfer fee is a one-time charge to register a change in ownership of a member’s household.
Think of it as an HOA initiation fee.
Read more: What is an HOA transfer fee, and who pays for it?
So, there you go. That’s the comprehensive list of closing costs that you were looking for. Now that you know, it’s time to pay up.
All these costs are totaled at closing, and you pay the “cash to close.” Here’s how that works.
Dig deeper: Cash to close — What you’ll owe on closing day
The list of applicable closing costs noted above is totaled and detailed in the Closing Disclosure, which you will receive three days before the loan closes. It’s a five-page document with the final tally of fees and the loan details. (We’ll get into the Closing Disclosure in more detail later.)
You will likely need a certified or cashier’s check for the total due.
The down payment has been noted on the Loan Estimate and now appears on the Closing Disclosure as an amount due.
Learn more: What is a down payment, and how does it work?
Remember when you bought a car, and the payment wasn’t due until 30 to 60 days later? It was a pleasant free ride, right?
There are no free rides in home loans.
On the day you close the loan, the number of days until the first mortgage payment is calculated. The daily interest due is multiplied by the number of days. You’ll pay that interest at closing.
The lender gets paid for every single day of interest until you make your first payment.
Read more: What is per diem interest when closing on a house?
The earnest money that has been held since the day you signed a purchase agreement to buy a house now comes back into play. While it has been sitting on the sidelines for weeks, it now jumps back into the game and is deducted from your closing costs total.
Dig deeper: What is earnest money when buying a house?
We have referred to two documents throughout this closing cost guide: the Loan Estimate and the Closing Disclosure.
They are two of the most useful documents in the whole buying-a-house adventure. Developed by the Consumer Financial Protection Bureau, they are concise (three pages for the Loan Estimate and five pages for the Closing Disclosure) and easy to understand. Every mortgage lender is required to issue these docs to you, and their formatting always looks exactly the same.
Read them. Ask questions. It will help alleviate any surprises at the closing table.
Learn more:
Closing costs can be overwhelming. It’s best if you can take things one at a time and just work your way down the list.
Buying a house is a little like jumping into a dark pool. You’re not sure how deep it is until you’re in over your head. That’s when you may decide you need some help.
If closing costs are stretching your cash reserves, you’ve got some options to consider:
Read more: What if you can’t afford closing costs? 6 ways you can still buy a home.
Here are two other strategies to explore: negotiations and seller concessions.
Ask for anything. So what if they say no? But if they say yes, you’re set.
First, carefully review the “Services you can shop for” on page two of the Loan Estimate. These are not huge expenses, but perhaps you can line up some small wins.
Lender fees are the biggest saving opportunity. When multiple lenders try to earn your business, you gain leverage. Being polite but firm, you may be able to whittle down the lender fees. That can result in some substantial savings.
All lender fees are listed under “Origination Charges” on page two of the Loan Estimate.
Dig deeper: 7 strategies for reducing closing costs
Another cost reduction strategy is asking the seller to pay some or all of your closing costs. A good real estate agent with strong negotiation skills can be a valuable asset in this effort to gain “concessions” from a seller.
A seller also might be persuaded to kick in some percentage of the home’s selling price in cash — called a seller credit.
It goes back to the premise of “it doesn’t hurt to ask.”
Learn more:
Some are, including mortgage discount points. Remember, those are the prepaid interest you give the lender in exchange for a lower mortgage rate. Of course, there are stipulations, but it’s worth noting in your records to follow up with a tax advisor if you paid discount points.
Property taxes are another cost that can often be deducted from your taxes.
Mortgage interest isn’t a big factor in closing costs but is a significant number over the course of a year, and it may also be tax deductible if you itemize.
Keep everything from your closing paperwork and put it in the folder you give your CPA. They can figure it out.
Read more: Are closing costs tax deductible?
Closing costs are generally estimated to be from 2% to 5% of the purchase price of a home. So, the formula would be: Closing costs = Purchase price x 0.02 to 0.05. If you’re buying a $400,000 home, this would come to $8,000 to $20,000.
Some closing costs can be negotiated, including lender fees, inspection and survey charges, homeowners and title insurance, and the title search.
Real estate commissions and origination fees charged by the lender are often the most expensive closing costs you’ll pay. That’s not including the down payment and earnest money, of course.
This article was edited by Laura Grace Tarpley.
