Closing costs is a term you’ll hear thrown around quite a bit while you’re house hunting. The term encompasses multiple fees and expenses, all relating to the final sale of a house.
What are Closing Costs?
Closing costs include:
Loan Origination Fees
Loan origination fees, or mortgage origination fees, are charged by lenders for creating and processing a home loan. They usually range from 0.5-1 percent of the loan’s value, according to Bankrate.
Appraisal and Inspection Fees
A home inspection is an examination done by a professional to assess the home’s potential issues and safety concerns, while an appraisal is an unbiased assessment of a home’s true market value. Both typically cost between $300-$500.
Title Insurance and Escrow Fees
Title insurance is designed to protect both the buyer and lender from issues with the title of a home, while escrow fees are paid to escrow or title companies to cover the exchange of funds. Title insurance usually ranges from 0.1-2 percent of the home’s value, while escrow fees are 1-2 percent of the home’s purchase price.
Prepaid Property Taxes
Prepaid property taxes, like the name suggests, are a portion of your property taxes paid at closing, usually used to ensure that your escrow account has sufficient funds to meet your future payments. Property taxes vary from state to state. You can find guides to closing costs by state below.
Homeowners Insurance
Homeowners insurance covers damage to your home and assets, including interior and exterior damage, damage and/or loss of personal property in the house, and injuries that occur on the property. Rates vary by state, and the average in the U.S. is about $2,100 annually.
Reducing Closing Costs
There are a few different ways to reduce your closing costs, including negotiating lender credits, seller contributions, and builder incentives.
A lender credit is money you receive from your lender to put toward the closing costs of your home, in exchange for a higher interest rate. You can leverage a good credit score, a high down payment, or a solid debt-to-income ratio to apply for a lender credit.
Seller contributions, or seller concessions, are payments made by the seller to cover certain costs or fees. They typically contribute a percentage of the home’s price, and can cover origination fees, appraisal and inspection fees, title search fees, HOA fees, and real estate taxes.
Some builders offer incentives to attract buyers, one of which is assistance with closing costs. Common builder incentives are 2 percent to 3 percent, though it can be based on a percentage of the home’s base price, the total sale price, or the buyer’s loan amount, depending on the builder.
Closing Cost Estimates
In the U.S., closing costs on a home are typically 2-6 percent of the loan amount. So, what does that look like in practice?
| Home Price | 20% Down Payment | 2% Closing Costs | 6% Closing Costs |
|---|---|---|---|
| $250,000 | $50,000 | $5,000 | $15,000 |
| $300,000 | $60,000 | $6,000 | $18,000 |
| $400,000 | $80,000 | $8,000 | $24,000 |
Closing Costs by State
Closing costs in New Mexico
Closing costs in Oregon
Closing costs in Pennsylvania
Closing costs in Vermont
Closing costs in Virginia
Closing costs in Washington
Closing costs in West Virginia
Closing costs in Wisconsin
Closing costs in Wyoming
Buying a home is a long process, but knowing what each step of the closing process is like will help make the process much easier. To learn more about house hunting and closing costs, visit newhomesource.com/learn.
James Klingele
James Klingele holds a Bachelor of Science in Digital Media Innovation from Texas State University. He is a digital media specialist and content creator with a passion for storytelling in both print and digital formats. His work has included covering high-profile events like SXSW, where he contributed to content creation for global audiences. He has been a content specialist for NewHomeSource since 2024.