What Are Closing Costs?

Closing costs are the expenses and fees associated with the purchase and sale of a home, such as taxes, title insurance, appraisal, and lender fees. For buyers taking out a mortgage loan, closing costs are listed on the Closing Disclosure statement the buyer should receive from the lender at least three days before closing.

Average Closing Costs for Buyer

Closing cost amounts vary depending on the buyer's loan program, but they typically range from 2%–5% of the purchase price. The buyer's down payment must also be paid at closing, but it is listed separately from the closing costs.

Learn more about how much closing costs are for your purchase below.

What is Included in Closing Costs?

Appraisal

Home appraisals can cost $300–$500 depending on your location and home price. If you pay for the home appraisal at the time of service, it will not be included as part of your closing costs.

Inspection

Home inspections are typically paid in-person and are not included as part of your closing costs. Inspections typically cost between $300–$500, which varies based on the property and your local rates.

Earnest Money

In most areas, you will pay an earnest money deposit when you reach mutual acceptance on your home purchase. Earnest money is typically 1%–3% of the home's price. The amount you pay in earnest money will be subtracted from your closing costs — reducing the total amount you owe at closing.

Loan Origination Fee

Your lender may charge you a fee for creating your loan. Not every lender will charge you an origination fee. Be wary of lenders who charge high fees. Ask your lender what the fee covers and if it's negotiable.

Loan Processing Fee

Lenders may charge a fee for processing your loan. This fee covers any additional costs incurred for underwriting or services performed to finalize your loan. Similar to the origination fee, ask your lender what the fees cover and if it can be waived.

Loan Discount Points

If you purchased points to lower your interest rate, you will pay a one-time fee for them at closing. A discount point can lower your interest rate by 0.25%–0.5% — and, just like interest rates, the price of points changes daily. While it may seem attractive to pay for a lower interest rate, it may not be worth it in the long run if you don't plan to own your home for very long or plan to refinance in the future.

Private Mortgage Insurance (PMI)

Private mortgage insurance is required if your down payment is less than 20%. FHA and VA loans may also require you to pay an upfront fee for private mortgage insurance at closing in exchange for allowing you to have a lower down payment. Private mortgage insurance is typically included as part of your monthly loan payment. However, some loans will allow you to pay your private mortgage insurance upfront as a one-time fee at closing. It's up to you to decide if you want to pay more at closing or higher monthly mortgage payments.

Homeowners Association Dues

If the home you are purchasing has a homeowners association, you will pay one month's dues upfront at closing. Homeowners association dues vary by property and cover maintenance fees and operations costs.

Homeowners Insurance

Your homeowner's insurance premium for the year may be included in your closing costs.

Property Taxes

You will pay a portion of your property taxes upfront at closing.

Title Insurance

Title insurance is a one-time fee paid as part of your closing costs. As the homebuyer, it's common for you to pay for the lender and your own title insurance policies.