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- Mortgage closing costs typically range from 2% to 6% of your loan amount.
- They can vary widely by lender and location.
- There are several ways to reduce your closing costs and make your loan more affordable.
Closing costs are one of the two major upfront expenses you'll need to cover when buying a home. And while the exact amount you'll pay can vary quite a bit, you can generally expect to pay somewhere between 2% and 6% of your total loan amount.
That would amount to around $6,600 to $20,000 on a median-priced house (according to Redfin data from the second quarter of 2024). That's in addition to a 20% down payment of $82,460
Here's what to know about these costs and what goes into them.
Understanding closing costs
Closing costs are a major expense to consider when shopping for a mortgage or considering buying a house. Your closing costs can add significantly to the amount you need to buy a home, and are an expense that's separate from your down payment.
What are closing costs?
Closing costs consist of the charges you incur during the process of getting a mortgage. They can include things like your mortgage lender's origination fees, the appraisal you got on the home, or the cost of getting a title search. Closing costs are so named because you'll pay these costs at the closing of your loan.
Why are closing costs necessary?
Closing costs compensate the various third parties involved in your home purchase or refinance — your lender, real estate agent, appraiser, surveyor, and more. They also pay for things like your HOA dues, property taxes, home insurance, and other necessary expenses of homeownership.
It is possible to get a loan without closing costs, but often, the costs roll into the life of the loan. You may find that a loan with lower or no closing costs has a higher mortgage interest rate, which could make costs higher than simply paying up front. A lender could also add closing costs to the loan's principal, which increases the total amount you'll pay interest on.
Breakdown of average closing costs for buyers
Closing costs are paid to some of the entities that help you complete the homebuying process and close on your home. Here's a closing cost breakdown, according to the Federal Reserve.
Loan origination fees
The bulk of your closing costs will go toward your lender. They is usually an origination fee of 0% to 1.5% of the loan amount that goes toward the lender's costs of underwriting and preparing your mortgage, as well as other lender-side fees, like an application fee ($75 to $300), credit report fee, (around $30), and more.
Appraisal and inspection fees
Your lender will order an appraisal to ensure the home is worth at least the amount of the loan. This typically costs between $300 to $700, depending on where you're located. You may also have additional inspection fees (like pest inspections, for instance).
Title insurance and settlement fees
Lenders have a title company run a search on the home's title in order to verify that the seller is the property owner and that the title doesn't have any liens on it. Lenders typically require borrowers to purchase a lender's title insurance policy as well, which protects the lender in the event that title issues come up later on. If you want this protection for yourself, you'll also need to purchase an owner's title insurance policy. Expect to pay around $700 to $900 for your title services.
There are also settlement fees. These fees are paid to the lawyer who manages the closing for the lender and typically cost $500 to $1,000.
Property taxes and prepaid interest
Property taxes for the home you're buying may also be due at closing. The amount you'll owe will be prorated to cover the taxes you're responsible for that the seller has already paid for the year.
You'll also have to pay interest for the time between when you close on the mortgage and your first mortgage payment.
Homeowners insurance and escrow fees
If your mortgage includes an escrow account, you will likely need to pay a certain amount into the account at closing to be used at a later date. You will also need to cover the costs of your home insurance policy at closing. This will vary based on your insurer, deductibles, coverages, and more.
Factors influencing closing costs
Closing costs aren't set in stone and can vary widely from one borrower to the next. Here's what can impact them.
Location and property value
Many closing costs are calculated as a percentage of your loan amount. As such, the housing market you're in and the home's value/price play a big role in how much you'll pay. (You can reduce your loan amount by making a large down payment, so consider this if you want to minimize closing costs).
Type of loan and lender policies
Since many closing costs come from the lender, which company you choose can heavily influence your total bill, too. The type of loan you choose also matters. For instance, with an FHA loan, you'll have an upfront Mortgage Insurance Premium to pay at closing (conventional loans don't require this).
Negotiation and seller concessions
The exact terms of your transaction matter as well. If you or your agent has negotiated with the seller to cover a portion of your closing costs, you could end up paying much less than other borrowers. Sellers may be more willing to do this in a buyer's market, where there is more inventory than there are buyers.
How to estimate your closing costs
Having a good estimate of your closing costs is important before buying a home. Not only will you need time to save for them, but it can also help you zero in on the right price range to shop in.
Here's how to go about estimate your closing costs:
Use a closing cost calculator
There are online closing cost calculators that can help you get an idea of what you might pay at the closing table. Just be prepared to do some research, as much of the data you'll need to put in will need to be localized (property taxes, HOA dues, etc.)
Review your loan estimate
Lenders are required to give you an official loan estimate when you apply for a mortgage. This should outline all the fees and expenses you're expected to cover at closing.
These costs can sometimes change slightly as your loan goes through underwriting, but your lender will send you a final breakdown of them — called the Closing Disclosure — within three days of your closing date.
Consult your real estate agent
Your agent should have a good idea of what closing costs look like in your area. They may have even worked with your lender before and can help you get a solid pulse on what you can expect to pay.
Tips to reduce closing costs
Closing costs can get expensive. Here's how to reduce closing costs for buyers:
Shop around for lenders
Closing costs can vary by lender, so comparing a few different companies can typically help you save. Just make sure to apply around the same time, for the same loan amount, and using the same loan program. Then, use each lender's loan estimates to compare total fees.
Negotiate fees
You can also try to negotiate with your lender on some of the fees it charges. Using loan estimates from other lenders may give you some leverage and make them compete for your business.
You can also shop around for some third-party service providers (like your surveyor, for example), and try to negotiate on those, too.
Consider seller concessions
Depending on the conditions in your local housing market, asking the seller to cover some of your closing costs might be a possibility. Ask your agent if you're considering negotiating closing costs with a seller.
FAQs on average closing costs for buyers
The average closing costs for a homebuyer range from 2% to 6% of the total loan amount.
Yes, some lenders allow closing costs to be included in the mortgage loan. Keep in mind that doing this will mean a higher monthly payment and more long-term interest costs.
Many closing costs are negotiable; you can shop around and ask the seller to cover certain fees.
Seller concessions are when the seller agrees to pay part of the buyer's closing costs to facilitate the sale.
To get an estimate of your closing costs, you can use online calculators, review your loan estimate, and consult with your real estate agent.
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