Closing Costs


Learn about the various closing fees during a home purchase, their costs, and who pays for what. Also included in this quick guide are ways buyers can reduce the price of closing costs.

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What are Closing Costs?

Closing costs are the fees and expenses one pays when closing on the purchase of a home. They typically make up 3 to 5 percent of the home loan, in addition to the down payment. Depending on the size of the loan, these costs can add up, so it’s important for buyers to prepare for these expenses. Common closing fees include the appraisal and inspection, title insurance, attorney’s fees, and property taxes.

Types of Closing Costs

Closing costs encompass various fees that will need to be paid to complete the home transaction. Broken down into two categories: property fees and mortgage fees, let’s jump in!

Property Fees

These closing costs verify the home’s ownership and value.

Appraisal Fee: An appraiser will assess the home to determine its worth. On average, a home appraisal costs $348, depending on the size of the home; a bigger home will likely be more expensive. This fee is typically paid by the buyer well before closing day.

Home Inspection Fee: While not required, a home inspection differs from an appraisal. A home inspection will require an inspector to assess the home’s condition, structural integrity, age, needed repairs, and more to identify any problems. On average, a home inspection costs a few hundred dollars and is usually paid for by the buyer.

Title Search: A title search may be conducted to ensure that there are no outstanding claims or liens against the property. Title searches cost around $450 and are paid for by the buyer.

Title Insurance: Lenders require borrowers to obtain title insurance in case there are issues with ownership after the sale. This typically costs 0.50 to 1 percent of the loan amount. However, for an additional cost, borrowers may purchase their own title insurance policy to protect their finances.

Property Taxes: Buyers may be required to pay 6 months to a year’s worth of property taxes at closing. The cost and rate will range depending on location.

Escrow Fees: Paid to the escrow agent, this fee can vary based on the home's purchase price.

Mortgage Fees

The following closing costs relate to applying for and obtaining a mortgage:

Credit Report: A lender will run a credit report to check the borrower's credit history and outstanding debts. This fee can be $25 or more per borrower.

Loan Origination Fees: Loan origination fees are how the lender makes money. These fees consist of the processing and underwriting of the loan, which can involve document preparation, notary fees, and the lender’s attorney’s fees. They will charge the borrower a fee of 0.5 to 1 percent of the loan amount.

Application Fee: Many lenders will require the borrower to pay for their mortgage application. This can range from $100 - $500.

Discount Points: This optional fee can lower the borrower's interest rate. By paying for points at closing, the buyer may receive a better rate, which will make a big difference over the life of the loan. Each point is equal to 1 percent of the loan amount; buyers can buy up to 5 points.

How to Reduce Closing Costs

While buyers cannot completely avoid paying closing costs, some can be negotiated. Some sellers are willing to help pay for closing costs, depending on the situation. Here are a few ways to lower closing expenses:

Lender Discounts: Buyers should consider working with a lender who doesn’t charge an origination fee, or who offers a discount.

Down Payment Assistance: The down payment is the most costly of all closing expenses. First-time buyers should explore down payment assistance and grants to help cover their costs.

No-Closing-Cost Loan: This loan will allow the buyer’s costs to be rolled into the principal, meaning it must be paid back with interest, with the mortgage.

Bottom Line

Closing costs are expenses that every buyer should prepare and budget for before looking at homes. Getting pre-approved for a mortgage can help the borrower understand their closing costs and how much home they can afford. To be safe, buyers should prepare for their closing costs to be around 5% of the loan amount and budget accordingly. Additionally, buyers should budget for movers, new furniture, home repairs, and other moving expenses.

Ready to begin your home search? HomeHunt has the real estate professionals you need to facilitate the buying process and close on your dream home. Contact us today!