7 Min Read | November 17, 2022
How Much Are the Closing Costs on a House?
Closing costs are usually between 2% and 6% of the home's purchase price – but regional taxes and variations in home prices can make a big difference.
At-A-Glance
The national average for closing costs on a home purchase was $6,905 in 2021 – but local variations in home prices and taxes can make a big difference.
Many closing costs are either fixed fees or calculated as a percentage of the home’s value, but some may be negotiable.
When you’re making the financial preparations to buy a house, it’s natural to focus most of your attention on the really big-ticket items, which are usually the down payment and the mortgage loan. But don’t forget to budget for closing costs, which you’ll generally need to pay at the time the purchase completes, or “closes.”
Closing costs usually total anywhere between 2% and 6% of the home’s purchase price. Nationwide, average closing costs for a single-family home were $6,905 in 2021, according to one analysis. But the amount varied greatly by city and by state, due largely to differences in local taxes and home prices. In Missouri, for example, average closing costs were less than $3,000; in Washington, D.C., they were nearly $30,000.1
Buyers’ closing costs include a range of individual items, ranging from tens of dollars to $1,000 or more. They typically include:
- Mortgage lender fees.
- Title company fees.
- Insurance premiums and local taxes.
- Home inspections.
Many of these costs are either fixed flat fees or calculated as a percentage of the home’s value, but you may be able negotiate a few of them. And if you’re feeling that you, as the homebuyer, are taking on too large a proportion of the costs involved in the transaction, remember that the home’s seller has expenses too. Those expenses generally include the commissions for both the buyer’s and the seller’s real estate agents, which together may total up to 6% of the home’s purchase price.
Loan Fees Add Up
Your lender charges a variety of fees for processing your mortgage loan, all of which go into the closing costs on the house. Some lenders break out their fees into individual items; others lump some of the fees together. They include:
- Origination fee: This covers the lender’s administrative costs for processing the loan. It’s often around 1% of the loan amount, but can vary widely. Some lenders also charge an additional application fee of several hundred dollars.
- Credit check: Your lender will check your credit score and credit report when deciding whether to offer you a loan and determining the interest rate. A higher credit score generally translates to a lower interest rate, and vice versa.
- Appraisal: Your lender will order an appraisal, usually costing several hundred dollars, to make sure the home is worth what you’re paying for it. (To learn more, read “Everything You Need to Know About Home Appraisals”)
- Flood determination: In certain instances, a mortgage lender can charge a fee for determining whether the property lies in a flood zone. If it does, you may have to buy flood insurance.
- Discount points: Your lender may offer the option to pay one or more discount “points” up front in exchange for a lower mortgage interest rate. Each point is equal to 1% of the loan amount.
You’ll Need to Pay Title Fees
A title company is usually involved in each real estate transaction. As its name suggests, the company researches the “title” – the legal documents that verify the property’s ownership and other specifics. But in some areas the title company may also play a broader role as an independent party that manages the closing process, safeguards your funds in a special account (known as an “escrow” account), and distributes them at closing. Some typical title-related closing costs are:
- Title search: The title company performs a search to ensure the title is “clear” – meaning that the current seller really is the owner, and that there are no other claims or restrictions that could hinder the sale.
- Title insurance: Title insurance provides protection in case problems are discovered with the title after the initial title search. There are two kinds of title insurance: lender’s insurance, which covers the lender, and buyer’s insurance, which covers you. You’re generally required to pay for lender’s insurance, and you have the option to get buyer’s insurance, too.
- Escrow or settlement fees: These compensate the title company for managing the closing process.
- Recording fees: The county charges a fee for recording the transfer of title from the seller to you.
- Notary and courier fees: These may be charged, especially if you sign the final documents at home instead of at the title company’s office.
Don’t Forget the Cost of a Home Inspection
Buyers generally order and pay for a home inspection to identify any problems with the home. Depending on the results of the inspection, you may be able to negotiate with the seller for the cost of repairs. You may pay for the inspection before closing or as part of the closing costs. A basic home inspection generally costs $300 to $500, but the cost can vary widely. You may also need specialized inspections for hazards such as termites, lead-based paint, or radon gas.
Prepay Insurance Premiums, Interest, and Taxes
Besides the one-time costs associated with the home sale, you may also have to pay an initial installment toward some of the ongoing costs of home ownership, such as:
- Property taxes: Your closing costs may include a prorated portion of the annual property taxes, based on the sale’s closing date.
- Homeowner’s insurance: You may have to pay a homeowner’s insurance premium in advance.
- Mortgage insurance: If your down payment is less than 20% of the home’s purchase price, you’ll probably have to pay some form of mortgage insurance, with an initial installment due at closing.
- Prepaid interest: Many lenders require you to prepay mortgage interest for the period between the close and the date of your first mortgage payment.
Some States Charge Transfer Taxes
In some parts of the country, you may face additional fees:
- Transfer tax: Most states – though not all – charge a transfer tax each time a home is sold. Some counties and cities also charge taxes on each sale. Most commonly, the seller pays transfer tax, but in some locations buyers are responsible for at least part of the cost. Transfer taxes can be substantial, so find out early in the buying process whether you’re responsible for any of the cost.
- Attorney fee: In some states, attorneys may manage the closing process or review the closing documents. If so, expect a fee.
When Do You Discover How Much Your Closing Costs Are?
You should receive estimates of your closing costs at least twice during the buying process:
- Three days after submitting your loan application: Your lender is required to send you a loan estimate, including estimated closing costs, within three business days of receiving your loan application. But these estimates may change by the time you close.
- Three days before closing: The lender should provide you with a closing disclosure document, including updated closing fees, at least three business days before your close. It’s a good idea to compare this to the original loan estimate, and ask the lender to explain each item and anything that has changed.
Can You Negotiate Closing Costs?
You probably can’t avoid paying all closing costs, but you may be able to negotiate some of them, or find ways to pay them more easily.
- Negotiate lender fees: Some lender fees may be negotiable or even unnecessary, especially unusually high administrative fees or additional charges like mailing costs. You may be able to negotiate with the lender – or look for another lender that charges lower fees.
- Shop around for services: You may be able to reduce your closing costs by shopping for lower-cost home insurance or inspections than offered by your lender.
- Finance closing costs: The lender should provide you with a closing disclosure document, including updated closing fees, at least three business days before your close. It’s a good idea to compare this to the original loan estimate, and ask the lender to explain each item and anything that has changed.
The Takeaway
When you’re mapping out your financial path to home ownership, it’s important to budget for closing costs. Buyers typically have to pay closing costs of 2% to 6% of the home’s purchase price. Those costs mostly pay lenders, title companies, and others that help you buy your home. Regional differences in home prices and taxes can make a big difference to how much you’ll pay in closing costs.
1 “Average Closing Costs for Purchase Mortgages Increased 13.4% in 2021,” CoreLogic ClosingCorp
Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant, and analyst for media brands, market-research firms, startups, and established corporations.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
Related Articles
How Much of a Down Payment Do You Need to Buy a House?
You may no longer have to make a big down payment to buy a home – but the traditional 20% down payment still has some advantages.
How to Save Money to Buy a House
Figuring out how much money to save to buy a house – and how to save it – takes time and strategy. Here are some ways to save money to buy that house you have your eye on.
Smart Ways to Increase Your Home Value
These tips from real estate experts show ways to increase the value of your home without throwing money down the drain.
