What Are The Average Closing Costs On A House?
Closing costs are one of those things no one tells you much about, until you’re knee-deep in the home-buying process. These fees cover all the behind-the-scenes work that makes your purchase official, from appraisals to title insurance and even attorney fees.
They’re necessary, but they can also feel overwhelming if you don’t know what to expect. The good news? A little preparation and understanding goes a long way.
With the right information, useful tools, and Rate’s Same Day Mortgage, you can handle closing costs with confidence and get one step closer to your new home today.*
Here’s a quick breakdown of what you need to know about closing costs to keep you on top of the homeownership journey.
What Are Closing Costs on a House?
Closing costs are the necessary fees and expenses you pay to finalize a home purchase. These costs go toward covering services provided by your lender, title company, and sometimes local laws, ensuring every aspect of the sale is legally and logistically sound.
Closing costs include things like appraisals, inspections, title insurance, and loan origination fees. What you’ll owe in your closing costs depends on several factors, like the type of loan, property location, and the terms of the real estate transaction.
Typically, both buyers and sellers share these costs, and the split depends largely on negotiations. Knowing what fees to expect, from credit report fees to transfer fees, can help you budget better and avoid unwanted surprises.
How Much Are Closing Costs?
Most buyers pay between 2% and 5% of their home’s purchase price in closing costs. For a $300,000 home, that means anywhere from $6,000 to $15,000. While this is a good rule of thumb, the exact figure depends on specifics like loan type, lender fees, and regional taxes.
To get a clearer picture, ask your lender for a loan estimate early in the process. This document provides a breakdown of expected costs, so you can plan ahead or shop around for better rates.
Rate also offers an online closing calculator to help you gauge your costs upfront which can help give you more clarity before making any decision. Homeownership tools like these make it easier to understand total closing costs and evaluate whether options like discount points or seller concessions make financial sense for your situation.
What’s Included in Closing Costs?
Closing costs may seem like a long list of fees, but they serve an important purpose in finalizing your home purchase. These expenses cover everything from legal requirements to lender services, ensuring that the transaction runs smoothly.
Below, we’ll break down each component to give you a clear picture of where your money goes and why.
Down Payment
The down payment is one of the largest upfront costs buyers face, representing a percentage of the home's purchase price. This amount doesn’t technically count as a fee, but it’s a significant part of closing.
A down payment option can range from as little as 3% for FHA loans to 20% or more for conventional loans. Paying more upfront reduces your loan balance, lowers monthly payments, and may eliminate private mortgage insurance (PMI) if you reach 20% equity.
For some buyers, consulting a financial advisor before committing to a down payment can help determine the right down payment amount based on their financial goals.
Prepaid Interest
This cost covers the interest accrued on your mortgage from the closing date until the start of the next month. For example, if you close on January 15, you’ll prepay interest for the remaining 16 days of January.
Prepaid interest ensures your loan terms align with your first scheduled mortgage payment, creating a smooth financial transition. Reviewing the details in your initial escrow payment statement will clarify this cost.
Property Taxes
At closing, buyers may reimburse the seller for property taxes already paid for the period after they take ownership.
Additionally, lenders typically require an escrow account to hold funds for future property taxes. This helps ensure payments are made on time, protecting both you and your lender from tax-related challenges.
Homeowners Insurance
Lenders require proof of homeowners insurance before your loan is finalized. This coverage protects your property against risks like fire, natural disasters, or theft.
Most lenders ask buyers to pay the first year’s premium upfront at closing to make sure the home is protected as soon as you take ownership. A comprehensive insurance policy is important for protecting your investment and meeting lender requirements.
Appraisal
An appraisal fee covers the cost of determining your property’s market value. Lenders require an independent appraisal to confirm the home is worth the loan amount they’re providing.
The sale price has to align with the appraisal’s findings to satisfy the lender’s conditions.
Application Fee
This fee covers the administrative costs of processing your loan application. Tasks like verifying your credit, employment, and income fall under this category.
While it’s typically a smaller portion of closing costs, it’s worth noting that some lenders may decide to waive this fee as a discount for you.
Reviewing your mortgage application carefully is important to making sure there are no discrepancies that could delay the approval process.
Closing Fee
The closing fee, also known as an escrow fee, goes to the title company or attorney handling your closing. Their role involves coordinating the transaction, confirming all documents are accurate, and making sure the funds are distributed correctly.
Depending on state laws, this fee might also include settlement fees for additional legal services.
Credit Reporting Fee
Lenders charge this fee to access your credit report during the underwriting process. Your credit score plays a major role in determining your loan’s approval, interest rate, and terms, which makes this fee a necessary part of getting a mortgage.
A good credit score can help you qualify for a lower interest rate and save money over the life of the loan. Checking your credit report for accuracy before applying is a good idea to avoid any major issues.
Lender’s Title Insurance
Lender’s title insurance protects the lender from potential disputes over property ownership.
For example, if a previous owner failed to settle a lien, this insurance ensures the lender isn’t liable.
Working with a reliable service provider can help you with a smooth title search and minimize your risks on your path to homeownership.
Recording Fee
Your local government charges a recording fee, which can change by location and can include state specific charges, to make your deed and mortgage documents part of public records.
This step legally establishes you as the property owner and provides transparency in the transaction.
Title Search Fees
A title search verifies the property’s ownership history to confirm there are no outstanding claims, liens, or disputes. This process protects both the buyer and lender, providing confidence that the title is “clean” before completing the sale.
Loan Origination Fee
Lenders charge an origination fee for preparing and processing your loan, separate from the application fee. This fee typically amounts to 0.5% to 1% of the loan amount and includes services like underwriting and coordinating your loan approval.
While it’s one of the larger closing costs, it’s crucial towards getting your loan. If you're the buyer, you should also go over the details of the origination charge to avoid surprises.
Private Mortgage Insurance (PMI)
If your down payment is less than 20% on a conventional loan, PMI is required to protect the lender in case you default.
PMI can be paid upfront at closing or included in your monthly payments. Once you reach 20% equity, PMI can typically be removed, reducing your monthly expenses.
Who Pays Closing Costs?
Closing costs are a shared expense between buyers and sellers, but the split isn’t always equal.
These fees can vary depending on the type of mortgage and the specifics of your purchase agreement. For example, in a seller’s market, buyers may have fewer opportunities to negotiate for assistance with closing costs.
Conventional Loans
With conventional loans, buyers typically cover costs like appraisal fees, loan origination fees, and title insurance. These are expenses tied directly to getting the mortgage. Sellers, on the other hand, are usually responsible for agent commissions and transfer taxes.
However, these cost responsibilities aren’t set in stone, buyers may negotiate for the seller to contribute toward their closing costs, especially in a buyer’s market or when competition is low.
VA Loans
VA loans offer a significant advantage for eligible veterans.
Additionally, VA loans cap the fees that buyers can pay, which improves affordability. Sellers can often step in to cover some closing costs during negotiations, making these loans even more appealing.
Keep in mind the VA funding fee is one of the few unique costs associated with this type of loan.
FHA Loans
FHA loans often have lower down payment requirements, but they come with unique costs. Buyers must pay an upfront mortgage insurance premium (UFMIP) and this fee is added to standard closing costs.
Sellers may agree to concessions to help the deal close, especially when buyers are paying for additional financial responsibilities, like the earnest money deposits.
Is It Normal for Sellers to Pay All Closing Costs?
It’s uncommon, but not impossible, for sellers to cover all closing costs. This usually happens in a buyer’s market or when sellers are motivated to make the deal more attractive.
In most cases, most transactions involve shared costs, with both parties paying their fair share.
What Are the Biggest Closing Costs Usually Paid by Buyers?
For buyers, the biggest closing costs typically include:
- Loan Origination Fee: Charged by the lender to process your loan, this fee often ranges from 0.5% to 1% of the loan amount.
- Appraisal Fee: This cost ensures the property’s market value aligns with the loan amount. Appraisal fees generally range from $300 to $600.
- Title Insurance: Protecting the buyer and lender from potential ownership disputes, this fee is a one-time expense that can vary based on the property value.
While these costs can feel steep, they’re essential in making the transaction secure and legally compliant.
What If I Can’t Afford Closing Costs?
If closing costs feel like a financial obstacle, don’t worry, there are ways to manage them.
No-closing-cost Loans
Some lenders allow you to roll closing costs into your loan balance or offset them with a slightly higher interest rate.
Seller Contributions
Buyers can negotiate for the seller to cover part of the closing costs, especially in markets where sellers are motivated to close quickly.
Assistance Programs
State and local programs may offer grants or low-interest loans to help cover closing costs, especially for first-time buyers.
Exploring these options can make closing costs more manageable, helping you take the final step toward homeownership.
How to Lower Closing Costs
Closing costs are an important part of buying a home, but they don’t have to derail your plans.
Navigating the closing process with ease and aiming to lower your closing costs can be achieved confidently with a clear understanding of the process, smart negotiation and research.
Ready to simplify your home-buying journey? Rate’s Same Day Mortgage could help you get pre-approved quickly, with competitive rates and expert guidance to get you to the closing table faster. Start today and take the stress out of closing on your dream home.
*Rate, Inc’s Same Day Mortgage promotion offers qualified customers who provide certain required financial information/documentation within 24 hours of locking a rate on a mortgage loan the opportunity to receive a loan approval within 1 business day of timely submission of documentation and does not suggest that the borrower will receive funding on the same day as their application submission. For purposes of this offer, documents provided after 1 pm local time or on a weekend or company holiday will be deemed submitted the next business day. Rate, Inc. cannot guarantee that a loan will be approved or that a closing will occur within a specific timeframe. Not eligible for all loan types or residence types. Self-employed borrowers are not eligible. Borrower's interest rate will depend upon the specific characteristics of borrower's loan transaction, credit profile and other criteria. Not available in all states. Restrictions apply. Visit rate.com/same-day-mortgage for terms and conditions.
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