Closing costs are one of the final steps in purchasing a home. It covers all fees involved with the transaction.

Closing costs include all expenses related to homebuying or selling. These include the appraisal, taxes and title insurance, credit report fee and origination fee. These fees typically amount to between 2% and 5% of your total home purchase price.

You might be able find a program that will help you cover these costs or negotiate with the seller.

What are the closing costs?

The average closing cost is between 2% to 5% of the home’s total purchase price. These costs are added to your down payment and you will need to pay them upfront before you close your mortgage.

You may be eligible for first-time homebuyer programs depending on your location. These programs can help you to pay closing costs. Qualified buyers must meet income requirements to qualify for housing finance agencies that offer down payment assistance and closing cost assistance.

There may be programs that offer forgivable loans, fully amortizing second mortgages, and deferred payments second mortgages. Programs for down payment assistance are often targeted at certain groups such as first-time homeowners, veterans, active military personnel, and teachers.

Who pays the closing costs?

In general, closing costs are paid by the homebuyer. These expenses can vary depending on the state or contract of your residence.

The commissions paid by real estate agents to both sellers and buyers are usually paid by home sellers.

What are the most common closing costs for homebuyers

  • The loan origination fee — This is what the lender charges the borrower to cover administrative services such as underwriting, processing, and funding of the mortgage loan.
  • Credit report fees This is typically less than $30 and can be collected by a lender before they provide you with a loan quote.
  • Appraisal Fee — Services fees that cover an assessment to determine the value of your property.
  • Home inspection fee — A home inspection is a thorough assessment of the house’s physical condition. It typically costs between $300 and $500.
  • Title service charge — Costs relating to the premium for title insurance and lender service fees.
  • Recording Fee — Charges to your local government for recording your mortgage, deed and other documents related to your loan.
  • Prepaid expenses — This includes property taxes, interest up to the first payment due, and homeowners insurance. These expenses can be paid by your mortgage lender through an escrow account. An escrow account may be required depending on your location.

What are the most common closing costs for home-sellers?

  • Commissions of real estate agents — These commissions typically amount to 5% to 66% of the sale price
  • Transfer tax A tax on transactions that are required by the state or local governments.
  • Seller credits — Funds the seller contributes in order to pay some of the buyer’s closing costs or any repairs that are needed.
  • Attorney fees It may not be necessary to have an attorney present at closing, depending on the laws in your state. It’s a good idea to have an attorney present and answer your questions at closing.

Find out more: 7 things to consider when purchasing a house

How can I increase my loan‘s closing costs?

You may have to pay them as part your mortgage loan if you don’t pay the closing costs upfront.

Lender credits, also known as negative points, may be offered by lenders to refinance your no-closing cost loan. This is found in Section J of the second page. Lender credits are money that a lender offers to pay for closing costs.

If you don’t have enough cash to pay closing costs, this may appeal to you. Keep in mind, however, that a refinance with no closing costs will increase your loan balance and add expenses. This means you’ll need to repay a larger amount.

Common Question

What is a point?

You can purchase mortgage points from many lenders to lower your interest rates. Points are typically offered as a percentage on your mortgage cost.

What’s next?

If you are considering buying a home, your lender must provide you with closing disclosure documents at the least three days before you buy it. These documents should be carefully reviewed.

Also, make sure to compare your closing disclosure with your most recent loan estimate. If you have any questions or concerns, your loan officer will be able to resolve them.

Estimate your closing costs

To get an idea of what your closing costs might be for buying a house, use our closing costs calculator.