How Much Are Closing Costs?

Last Updated on September 20, 2024
Written by CPA Alec Pow | Content Reviewed by CFA Alexander Popinker

Finalizing the sale of a home comes with closing costs beyond just the purchase price. But what exactly are closing fees, what’s included, and how much should you budget as a home buyer or seller?

This guide examines typical closing cost ranges in 2024, who pays what, ways to reduce expenses, and how to financially plan for this significant transactional step when buying or selling property.

Article Highlights

Buyers typically pay 2-5% of home price in fees
Sellers face around 5-6% of the sale price in closing costs
Mortgage type impacts fees like origination, PMI, etc.
Regional averages fluctuate based on taxes and regulations
Shop lenders and negotiate with sellers to lower costs
Use detailed disclosures to project accurate figures

How Much Are Closing Costs For Home Buyers?

Home buyers pay closing costs including:

Loan origination fees – 1% of the mortgage amount
Appraisal and inspection fees – $300 to $500 each on average
Title search charges – $200 to $1,000 depending on location
Lender’s title insurance – 0.5% of the home’s purchase price
Recording fees – $25 to $150 to formally document the deed
Credit report fees – $25 to $50 per person

To illustrate, for a home selling for $300,000 with the buyer putting 20% down ($60,000) and securing a $240,000 mortgage, total closing costs would be roughly $6,000 as the buyer.

Buyers face the majority of closing expenses, which is important to plan for long before closing day.

Closing Costs for Home Sellers

Meanwhile, sellers also face closing fees including:

Real estate broker commissions – Around 5-6% of the final sale price
Owner’s title insurance premium – 0.5% of the sale price
State/local transfer taxes – Vary by location but typically between 0.01% to 4% of the sale price
Legal fees – From $400 to over $1,000

So when selling a $300,000 home, expect roughly $15,000 in total closing costs as the seller.

According to Investopedia, closing costs typically range from 3% to 6% of the purchase price of the home. For example, on a $300,000 mortgage, buyers can expect to pay approximately $9,000 to $18,000 in closing costs. The nationwide average closing cost for a single-family home was reported to be $6,905 in 2021, with the highest costs found in Washington D.C., averaging $29,888, and the lowest in Missouri at around $2,061.

Bankrate also states that mortgage closing costs generally run between 2% and 5% of the total loan amount. They note that for a home purchase of $200,000, closing costs could range from $4,000 to $10,000. The average closing costs for buying a single-family home were approximately $6,905, while refinancing averaged $2,375. Bankrate highlights that these costs can vary widely based on state regulations and local market conditions.

According to U.S. Bank, you can expect to pay between 2% and 5% of your loan amount in closing costs. For instance, if purchasing a home for $250,000, the expected closing costs would be between $5,000 and $12,500. They emphasize that these costs include various fees such as appraisal fees, title fees, and the first year of homeowner’s insurance.

A report from Better Money Habits indicates that closing costs typically range from 3% to 5% of the loan amount and include expenses like title insurance and attorney fees. They suggest budgeting accordingly since these costs can add up quickly during the home-buying process.

What Are Closing Costs?

Closing costs refer to the various fees charged by lenders, title companies, attorneys, and other parties to legally process, document, and finalize the sale and purchase of a home.

Both home buyers and sellers will face closing fees, which typically add 2-5% of the total home price for buyers. Sellers also face around 5-6% in closing costs, mainly from real estate agent commissions.

These expenses cover processing mortgage loans, appraisals, credit checks, title insurance, legal fees, and taxes. The closing date finalizes the sale once all closing fees are paid.

Shared Closing Costs Between Buyers and Sellers

Some closing fees are split between the buyer and seller:

Prorated property taxes – Portion owed for the remainder of the tax year
Homeowners association (HOA) fees – Prorated if the property is in an HOA
Recording charges – Typically around $100 to file the deed
Escrow service fees – $300 to $700 depending on the state

Work with your real estate professionals to determine which party covers specific shared closing fees per your purchase agreement.

You might also like our articles on the cost of buying down interest rates, timeshare lawyers, or title searches.

Mortgage Type and Down Payment Amount

The buyer’s mortgage type and down payment details also influence total closing expenses:

FHA loans – Require a 1.75% upfront mortgage insurance premium fee added to costs
VA loans – Funding fees range from 1% to 3% depending on your military service
Conventional loans – Added private mortgage insurance (PMI) is required if less than 20% down payment

Putting down at least 20% for conventional mortgages helps buyers avoid thousands in PMI. Know your loan program closing cost implications.

Geographical Variations

Closing costs range significantly based on real estate market conditions across the country. For example:

Texas – Average closing costs around $5,000 total
California – Between $8,000 to $10,000 in closing fees
Florida – Typical closing costs range from $7,000 to $9,000
New York – Over $10,000 in closing costs frequently

Local customs, regulations, tax rates, and title insurance premiums cause this geographic variability in closing fee ranges.

Strategies to Minimize Closing Costs

To reduce total closing costs, smart home buyers can:

Negotiate with sellers to cover certain closing fees per the purchase contract. Most sellers will pay at least some shared costs.
Shop and compare multiple mortgage lenders to secure the best rates on financing fees like origination charges.
Buy down the interest rate using discount points to lower long-term interest costs in exchange for paying more upfront.
Time the closing date strategically to limit prepaid taxes or other prorated fees. Aim to close late in a month.

With savvy planning, buyers can preemptively trim thousands off total closing expenses.

How to Estimate Your Closing Costs

To forecast likely closing fees early:

Closely review the Loan Estimate form your lender is required to provide within 3 days of mortgage application. This will list all lender fees.
Use free online closing cost calculator tools that estimate based on your zip code, home price, taxes, etc.
Budget conservatively for around 2% to 5% of the total home purchase price as the buyer.

There should be few last-minute surprises at your closing appointment if you request lender disclosures early and run estimates.

Closing Cost Considerations

Home buyers making cash purchases without financing also face closing fees, but generally reduced costs since there is no mortgage origination, processing, or PMI. Typical fees for cash buyers include:

Title search, title insurance, escrow services
Inspections if desired
State/local transfer taxes on the sale
Recording fees for the deed
Legal fees

Even with a cash purchase, expect 1-3% of the home price in miscellaneous closing fees as the buyer.

In summary, being aware of typical closing costs helps home buyers and sellers financially prepare for this final transactional step. While closing fees vary based on your property location, loan type, and other factors, accurate budgeting keeps your real estate deal on track.

Expert Insights

Real estate professionals share their best tips for minimizing surprise closing fees:

“Sellers can offer a closing cost credit to buyers to cover a fixed dollar amount, often $5,000 or more depending on market conditions.” – Mark Lee, Real Estate Attorney

“If your loan estimate lists excessive fees, ask lenders to explain each or try negotiating them down.” – Priya Patel, Mortgage Broker

“Title and escrow fees can vary, so compare several providers for the best rates.” – James Smith, Real Estate Agent

“Avoid assuming your agent will handle all closing tasks – stay engaged in the process.” – Olivia Thompson, Buyer’s Agent

“If timing allows, delay closing to the end of a month. Prepaid taxes and other prorated fees will be lower.” – Michael Chen, Financial Planner

Leveraging their professional perspectives ensures you secure the lowest feasible closing costs.

Answers to Common Questions

Let’s recap answers to some common home buyer and seller questions:

Who pays most closing costs?

The buyer traditionally pays more closing costs, often between 2-5% of the home price. Buyer expenses are higher, especially when financing with a mortgage versus all cash. Sellers pay around 5-6% of the sale price largely through real estate agent commissions.

Does deposit count towards down payment?

No, the earnest money deposit goes toward the down payment amount due at closing. It does not specifically offset other itemized closing fees. However, a larger down payment lowers mortgage fees.

Does a buyer have to pay a deposit?

Yes, buyers will need to pay a good-faith deposit, typically 1-3% of sale price, once an offer is accepted. This money is held in escrow and applied to the total down payment due at closing.

Can I deduct closing costs when filing income taxes?

If you itemize deductions, certain closing costs like mortgage interest, real estate taxes, and points paid may qualify. Consult a tax professional to maximize deductions and properly report closing costs.

We hope these closing cost insights help buyers and sellers prepare financially for a smooth home transaction. Do your homework early in the process to avoid unwelcome surprises at settlement.

Final Words

Home buyers face average closing costs between 2-5% of the purchase price, while sellers typically incur around 5-6% in fees at closing. However, closing costs ultimately hinge on your property, mortgage details, location, credits negotiated, and other factors.

Being an informed buyer and seller allows you to budget wisely and manage costs proactively. Connect with real estate professionals to understand precise closing fees specific to your transaction. With diligent preparation, you can tackle closing day with confidence.