What Are Closing Costs?

Learn all about closing costs — and how to avoid them.

First-time homebuyers know that buying a house is an expensive proposition, but you might not know about the many costs associated with your mortgage. When you “close” the sale by finalizing your loan and transferring title to your name, you’ll pay fees associated with the purchase. Those fees are called closing costs. Although the lender or seller might pay some of these costs on the buyer’s behalf under special circumstances, you should be prepared to pay them yourself. Learn more about closing costs so you can better understand how much it really costs to buy a home.

How Much Are Closing Costs?

Closing costs vary according to the property you buy and where it’s located, as well as the type of loan you have, but you can expect to pay average closing costs of between 2 percent and 5 percent of your home’s purchase price. Review this list of fees that might be included in your closing costs and learn how to avoid some of them to make your homebuying experience as seamless — and affordable — as you can.

Related: Step-by-Step Guide for First-Time Homebuyers

Typical Closing Costs

Closing costs can really add up, making buying a home even more expensive. Review this extensive list to find out what how much you might have to pay when you sit down at the closing table.

  • Appraisal fee: You’ll have to pay a licensed appraiser to determine the fair market value of your home. This fee should run you $450 to $650.
  • Attorney fee: Some states stipulate you must have an attorney present at closing. If you live in one of those states, you’ll pay the attorney between $150 and $500.
  • Closing fees, or escrow fees: You must pay the escrow or title company to conduct the closing. Fees for this service typically range from $300 to $600.
  • Credit report: The lender will charge you $25 to $50 to pull your credit report. The lender uses the report to evaluate your risk as a borrower.
  • Escrow deposit for property taxes: Lenders often require that you put down two months of property tax payments at closing. The price depends on your property value and tax rate.
  • Home inspection feeA home inspection, which looks for hidden defects and might enable you to negotiate a price reduction or concession from the seller in the event a problem is found, typically costs $450 to $500.
  • Home warranty fees: The average cost of a home warranty is $300 to $600, depending on what the warranty covers. Generally, home warranties cover repair or replacement of a wide array of items related to your home’s plumbing, electrical and HVAC systems and your appliances.
  • Homeowners association dues: You’ll likely be asked to pay one month’s homeowners association dues if you’re buying a condo or a home in a community governed by an association. Dues are based on property-maintenance and association operational costs.
  • Homeowners insurance: You must get an insurance policy that covers damage to your home, and you’ll typically have to prepay the first year’s premiums. Costs will depend on your insurance company, the value of your home and its contents, and your coverage choices.
  • Loan discount points: You might pay lender fees or upfront interest to reduce your loan’s interest rate. These fees are called points. Each point equals 1 percent of your total loan amount.
  • Mortgage application fee: The lender might charge a fee to process your mortgage application, and the fee typically runs about $100. Ask your lender what the application fee covers, because it could include your home appraisal cost and credit check.
  • Notary fees: A notary walks you through signing all your loan documents at closing. The process should take about an hour, and you’ll pay $75 to $200 for this service.
  • Origination fee: You’ll have to pay the lender’s administrative costs of $300 to $1,500 for preparing your mortgage.
  • Owner’s title insurance policy: You aren’t required to purchase this insurance, but it will protect you in the event a title defect such as an unpaid lien is discovered after you purchase your home. The insurance costs an average of $1,000.
  • Pest inspection: You might be required to pay for a pest inspection to determine if the property has dry rot or wood-boring insects. The typical cost for the service ranges from $45 to $400.
  • Prepaid interest: A prepaid interest payment covers interest that will accrue between the time you close and the date of your first mortgage payment. The cost will depend on your closing date, loan amount and interest rate.
  • Recording fees: You must pay to have your deed, and perhaps your mortgage, legally recorded in your city or county. Your local government sets this fee.
  • Survey fee: You might need a survey done to verify your property lines. A surveyor’s fees typically range from $350 to $500. 
  • Title search fee: You’ll pay $300 to $600 to a title company to conduct a search of your property’s chain of ownership to ensure there are no undisclosed liens or other claims on the property.
  • Title insurance fee: Title insurance protects the lender against any title issues the title search overlooks. You’ll generally pay a one-time fee in the range of $1,000 to $4,000 for this.
  • Transfer taxes: You must pay a tax when the title passes to you from the seller. Depending on your municipality and state, you’ll pay either a flat fee or a percentage of your home’s purchase price.
  • Underwriting fee: The lender charges an underwriting fee, usually $400 to $600, to cover the cost of examining your financial and credit information to determine whether to approve your loan.
  • VA funding fee: Borrowers with loans guaranteed by the Department of Veterans Affairs pay an upfront funding fee at closing. Veterans using their VA loan benefit for the first time pay up to 2.4 of the mortgage amount, but disabled veterans are exempt.

See: Best and Worst States for First-Time Homebuyers

How to Avoid House Closing Costs

You can take advantage of some ways to reduce or eliminate closing costs. Some options to minimize what you spend include the following:

  • Take advantage of loyalty programs at financial institution where you have checking, savings or credit accounts.
  • Schedule your closing at the end of the month to reduce the amount of prepaid interest you owe at closing.
  • Ask the seller to credit you for up to 6 percent of your closing costs. This concession is a tax deduction for sellers.
  • Consider joining a credit union. As member-owned nonprofit financial institutions, credit unions can be more flexible with fees, perhaps saving you money.

You can also avoid upfront fees on your loan by getting a no-closing-cost mortgage, for which you don’t pay any of the closing costs at the time you close on the mortgage. These costs might be rolled into your loan or result in a higher interest rate, but deferring them reduces the amount of cash you need at closing.

Up Next: Are Closing Costs Tax Deductible?