Closing costs add up to anywhere from 3% to 6% of the purchase price. This means if your home is $400,000 and your closing costs are 4%, you’ll owe $16,000 at closing.
Some examples of costs common during a closing:
- Application fee — The application fee covers the cost of administering the transaction and handling the documentation.
- Appraisal fee — A licensed appraiser inspects the home to determine its worth. This appraisal fee typically costs a few hundred dollars.
- Credit report — As part of the due diligence to determine your credit worthiness and determine the interest rate for your loan, the lender will pull your credit report. This fee is rolled into your closing costs.
- Homeowner’s insurance — Homeowner’s insurance is typically required to protect the home from loss or damage. Up to one year’s worth of insurance is due at the closing.
- Private mortgage insurance (PMI) — PMI is designed to protect the lender in case you default on your loan. Until you own a certain percentage of the home, private mortgage insurance may be required by your lender.
- Property taxes — Depending on your location, you may be required to pre-pay 60, 90, or 180 days worth of property taxes when you close on your house.
- Transfer tax — Typically a percentage of the sales price or fair market value of the house, this tax fee is collected and paid when the title passes from the seller to the buyer.
- Underwriting fee — Also known as a loan origination fee, this fee is charged by the lender for preparing the mortgage loan.
- Title search services: A title search verifies the seller’s legal right to transfer the property to the buyer and flags and liens that may have to be cleared before the sale can be completed.
- Real estate attorney’s fees: It’s customary and advisable (and mandatory, in some jurisdictions) for both buyer and seller to hire attorneys to review sales contracts before a home sale is completed. In more complicated sales—if a home is occupied by tenants at the time of the sale, for instance, or if the sale is contingent on the seller completing certain repairs or improvements—attorneys may play a more active role, crafting contract provisions to protect their client’s interests.
- Agents’ sales commission: Real estate agents representing the buyer and seller typically split a commission of 5% to 6% of the sales price.
The Bottom Line: There are steps you can take to bring down your closing costs:
- Schedule your closing at the end of the month. Part of your closing costs is prepaid interest charges on your mortgage for the remaining days of the calendar month. If you schedule your closing toward the end of the month, you’ll only pay these charges for a few days.
- Ask the seller to cover some of the costs. In a buyer’s market, and/or if your seller is particularly eager to complete the sale, you can ask them to cover some of the closing costs.
- Compare your loan estimate and your final closing disclosure form. Check for inconsistencies and new charges. If something doesn’t look right, bring it to the attention of your lender.