The home's price is just the beginning. Closing costs add 2-5% when buying and 8-10% when selling. Understanding these costs helps you budget accurately and negotiate better.
Buyer's Closing Costs (2-5% of Purchase Price)
Loan-Related Costs
Origination Fee: 0.5-1% of loan amount The lender's charge for processing your mortgage.
Points (Optional): 0-2% of loan amount Pay upfront to lower your interest rate. 1 point = 1% of loan = typically 0.25% rate reduction.
Application Fee: $300-500 Some lenders charge for processing your application.
Credit Report: $30-50 Cost to pull your credit from all three bureaus.
Appraisal: $400-700 Independent valuation required by lender.
Underwriting Fee: $500-1,000 Cost for lender to review and approve your loan.
Title and Legal Costs
Title Search: $200-400 Ensures the seller actually owns the property and can sell it.
Title Insurance (Lender's Policy): 0.5-1% of loan amount Protects the lender if title issues emerge later. Usually required.
Title Insurance (Owner's Policy): 0.5-1% of purchase price Protects you. Optional but recommended.
Attorney Fees: $500-2,000 Required in some states. Reviews documents and represents your interests.
Recording Fees: $100-250 County charges to record the new deed.
Prepaid Costs
Property Taxes: 2-6 months prepaid Lender escrows money for upcoming tax bills.
Homeowner's Insurance: 12 months prepaid First year's premium paid at closing.
Mortgage Insurance (PMI): First month prepaid If down payment is less than 20%.
Prepaid Interest: Depends on closing date Interest from closing date to end of month.
Seller's Closing Costs (8-10% of Sale Price)
Agent Commissions (5-6%)
Typically split between listing and buyer's agents. This is the biggest seller expense.
Note: Commission rates are negotiable, and recent changes may affect how buyer's agents are compensated.
Title and Transfer Costs
Title Insurance (Buyer's Policy): In some states, seller pays Varies by local custom.
Transfer Taxes: 0.5-2.5% State and/or local taxes on property transfers. Varies widely by location.
Recording Fees: $100-200 For deed transfer and mortgage release.
Other Seller Costs
Attorney Fees: $500-1,500 Required in some states.
Outstanding Liens: Variable Any existing liens must be paid off.
Prorated Property Taxes: Variable Your share of taxes for the portion of year you owned.
HOA Transfer Fees: $200-500 If applicable.
Home Warranty (Optional): $400-600 Sometimes offered as buyer incentive.
Sample Closing Cost Calculations
Buyer Example: $400,000 Home with 20% Down
| Cost Category | Amount |
|---|---|
| Origination (1%) | $3,200 |
| Appraisal | $500 |
| Title Insurance (lender) | $1,600 |
| Title Insurance (owner) | $2,000 |
| Title Search | $300 |
| Attorney | $1,000 |
| Recording | $150 |
| Prepaid Taxes (3 mo) | $2,000 |
| Prepaid Insurance | $1,500 |
| Total | ~$12,250 (about 3% of price) |
Seller Example: $400,000 Home Sale
| Cost Category | Amount |
|---|---|
| Agent Commission (5.5%) | $22,000 |
| Transfer Taxes (1%) | $4,000 |
| Title Insurance | $2,000 |
| Attorney | $1,000 |
| Recording | $150 |
| Prorated Taxes | $1,000 |
| Total | ~$30,150 (about 7.5% of price) |
Strategies to Reduce Closing Costs
For Buyers
1. Shop Lenders Get loan estimates from 3-5 lenders. Origination fees vary significantly.
2. Negotiate Seller Credits In buyer's markets, sellers may cover some closing costs.
3. Ask About Lender Credits Accept slightly higher rate in exchange for lender covering some costs.
4. Skip the Points Unless you'll stay 5+ years, paying points rarely makes sense.
5. Choose Closing Date Strategically Close late in the month to minimize prepaid interest.
For Sellers
1. Negotiate Commission Rates aren't fixed. Negotiate, especially in hot markets or for high-value homes.
2. Consider Flat-Fee Alternatives Some brokerages offer reduced services at lower rates.
3. Time the Sale Markets vary. Better market conditions = stronger negotiating position.
The Loan Estimate: Your Cost Preview
Lenders must provide a Loan Estimate within 3 business days of application. It details:
- Loan terms
- Projected payments
- Estimated closing costs
Compare Loan Estimates from multiple lenders. Focus on:
- Interest rate
- Origination charges
- Services you can shop for
Closing Disclosure: The Final Bill
3 business days before closing, you receive the Closing Disclosure showing final costs.
Compare to Loan Estimate:
- Most fees can't increase
- Some can increase up to 10%
- A few (like prepaid interest) can change freely
Question discrepancies before closing. You have a right to understand every charge.
The Bottom Line
Closing costs add significant expense to buying (2-5%) and selling (8-10%) homes. Factor these into your budget, shop for better rates, and negotiate where possible. Review your Loan Estimate and Closing Disclosure carefully—understanding these costs saves real money.