Learn to manage and negotiate your closing costs

Closing costs typically range from 2-5% of the loan amount, meaning you’ll pay $6,000-$15,000 on a $300,000 mortgage. These costs include lender fees (origination, underwriting), third-party fees (appraisal, title insurance, attorney) and prepaid items (property taxes, homeowners insurance, prepaid interest). Buyers pay most closing costs, though sellers typically pay real estate commissions and their own title insurance.

What Are Closing Costs?

Closing costs are the fees and expenses you pay to finalize your mortgage, beyond the down payment. They cover services from your lender, title company, government agencies and other third parties involved in the transaction.

Closing costs fall into three categories:

1. Lender fees: Charges from your mortgage company
2. Third-party fees: Payments to outside service providers
3. Prepaid items: Advance payments for taxes, insurance and interest

Complete List of Closing Costs

Here’s every fee you might see on your Closing Disclosure.

Lender Fees

Fee	Typical Cost	What It Covers
Origination fee	0.5-1% of loan	Lender’s profit and processing
Underwriting fee	$300-$900	Loan approval review
Application fee	$0-$500	Processing your application
Credit report fee	$30-$50	Pulling your credit
Rate lock fee	$0-$500	Guaranteeing your rate
Discount points	1% per point	Buying down your rate

Third-Party Fees

Fee	Typical Cost	What It Covers
Appraisal	$400-$700	Property value assessment
Title search	$200-$400	Checking ownership history
Title insurance (lender’s)	$500-$1,500	Protecting lender against title issues
Title insurance (owner’s)	$500-$2,000	Protecting you against title issues
Settlement/escrow fee	$500-$1,500	Managing the closing process
Attorney fee	$500-$1,500	Legal review (required in some states)
Survey	$300-$600	Property boundary verification
Pest inspection	$75-$150	Termite and pest check
Flood certification	$15-$25	Flood zone determination

Government Fees

Fee	Typical Cost	What It Covers
Recording fee	$50-$250	Filing deed with county
Transfer tax	Varies by location	State/local tax on property transfer
Mortgage tax	Varies by state	Tax on mortgage recording

Prepaid Items

Item	Typical Amount	Purpose
Prepaid interest	Varies	Interest from closing to month-end
Homeowners insurance	12 months	First year’s premium
Property taxes	2-6 months	Escrow account funding
Flood insurance	12 months	If in flood zone
HOA fees	1-2 months	If applicable

Sample Closing Costs Breakdown

Here’s what closing costs look like on a $350,000 home purchase with a $315,000 loan (10% down):

Category	Cost
Lender Fees
Origination (1%)	$3,150
Underwriting	$700
Credit report	$40
Third-Party Fees
Appraisal	$550
Title search	$300
Lender’s title insurance	$950
Owner’s title insurance	$1,200
Settlement fee	$750
Survey	$400
Pest inspection	$100
Government Fees
Recording	$150
Transfer tax (1%)	$3,500
Prepaids
Prepaid interest (15 days)	$650
Homeowners insurance	$1,800
Property taxes (3 months)	$1,500
Total Closing Costs	$15,740

This equals about 4.5% of the purchase price or 5% of the loan amount.

Who Pays Closing Costs?

Both buyers and sellers have closing costs, but they pay different fees.

Buyer’s Closing Costs

Buyers typically pay:

• All lender fees
• Appraisal
• Credit report
• Title insurance (lender’s policy)
• Settlement/escrow fee (often split)
• Prepaid items
• Attorney fee (in attorney states)

Seller’s Closing Costs

Sellers typically pay:

• Real estate commissions (5-6% of price)
• Title insurance (owner’s policy) - varies by state
• Transfer taxes (varies by location)
• Their portion of property taxes
• Any agreed-upon buyer credits

Negotiable Items

Items often negotiated:

• Owner’s title insurance (buyer or seller)
• Transfer taxes (split arrangements)
• Settlement fee (often split 50/50)
• Home warranty (seller often provides)
• Repair credits

Jennifer Martinez negotiated for the seller to pay the owner’s title insurance policy ($1,400) and provide a $5,000 credit toward closing costs. This reduced her out-of-pocket by $6,400.

Closing Cost Estimates: Loan Estimate vs. Closing Disclosure

You’ll receive two important documents showing your costs.

Loan Estimate (LE)

Received within 3 business days of applying. Shows estimated costs organized into sections:

• Loan terms
• Projected payments
• Closing costs details
• Cash to close

Use it to: Compare offers between lenders. Focus on Loan Costs (Box A) since those vary most.

Closing Disclosure (CD)

Received at least 3 business days before closing. Shows final, actual costs.

Compare to Loan Estimate for:

• Fees that increased beyond tolerance
• New fees that weren’t disclosed
• Changes requiring explanation

Fee Tolerances

Some fees can’t increase from Loan Estimate to Closing Disclosure:

Zero tolerance (cannot increase):

• Origination charges
• Points
• Transfer taxes
• Fees paid to lender affiliates

10% tolerance (combined increase limited to 10%):

• Recording fees
• Third-party services lender selects
• Title fees when using lender’s preferred provider

No tolerance limit:

• Services you shop for and select
• Prepaid items (taxes, insurance, interest)
• Initial escrow deposits

How to Reduce Closing Costs

Several strategies can lower your closing costs significantly.

Compare Lender Fees

Lender fees vary dramatically. Get quotes from at least three lenders and compare:

• Origination fees
• Underwriting fees
• Junk fees (processing, administration)

Angela Chen got quotes from five lenders. Origination fees ranged from $0 to $4,500 on the same loan amount. She saved $3,200 by choosing a lender with lower fees.

Negotiate with Your Lender

Many fees are negotiable:

• Origination fee (ask for reduction or waiver)
• Application fee (often waived if you ask)
• Rate lock fee (shouldn’t exist for normal locks)
• Processing fees (junk fees are negotiable)

Script: “I’ve received a competing quote with lower fees. Can you match or beat these closing costs?”

Ask for Seller Concessions

Sellers can contribute toward your closing costs:

Loan Type	Maximum Seller Contribution
Conventional (< 10% down)	3%
Conventional (10-24% down)	6%
Conventional (25%+ down)	9%
FHA	6%
VA	4%
USDA	6%

In buyer’s markets, sellers often agree to concessions. Include the request in your purchase offer.

Choose No-Closing-Cost Loans

Some lenders offer to pay your closing costs in exchange for a higher interest rate.

Example:

• Standard: 6.5% rate, $8,000 closing costs
• No-cost option: 6.875% rate, $0 closing costs

When it makes sense:

• You’ll refinance or sell within 3-5 years
• You want to preserve cash
• Break-even period is longer than your expected stay

When to avoid:

• You’ll keep the loan long-term
• Small rate increase equals large lifetime cost

Shop for Third-Party Services

You can often choose your own service providers for:

• Title insurance
• Home inspection
• Survey
• Attorney (where applicable)

Title insurance rates vary. Shopping can save $500-$1,000 on the same coverage.

Close at End of Month

Prepaid interest covers days from closing until month-end. Closing on the 28th means 2-3 days of prepaid interest. Closing on the 5th means 25-26 days.

Example on $300,000 loan at 6.5%:

• Close on 28th: $163 prepaid interest
• Close on 5th: $1,328 prepaid interest
• Savings: $1,165

Ask About First-Time Buyer Programs

Many programs reduce closing costs:

• State housing finance agency programs
• Down payment assistance programs
• Employer assistance programs
• Nonprofit homebuyer programs

Check with your local housing authority and state HFA website.

Closing Costs by State

Closing costs vary significantly by location due to different tax rates, insurance costs and attorney requirements.

Highest closing cost states (2024)averages):

1. New York: 6.0%+ (high taxes and attorney requirement)
2. Connecticut: 5.5%+
3. New Jersey: 5.0%+
4. Delaware: 5.0%+
5. Florida: 4.8%+

Lowest closing cost states:

1. Missouri: 2.0%
2. Indiana: 2.1%
3. Wyoming: 2.1%
4. Kentucky: 2.2%
5. Nebraska: 2.2%

Transfer taxes cause the biggest variations. Some states charge 2%+ while others charge nothing.

Closing Costs FAQ

Can closing costs be rolled into the loan?

Yes, but it depends on the loan type and your equity:

• Refinance: Yes, if you have sufficient equity
• Purchase: Generally no, except VA loans allow financing the funding fee

You can accept a higher rate for lender credits to offset costs instead.

Are closing costs tax deductible?

Some are:

• Deductible: Mortgage points (in year paid or amortized), property taxes, prepaid interest
• Not deductible: Appraisal, title insurance, attorney fees, recording fees

Points are fully deductible in the year paid for a primary residence purchase. Consult a tax professional for your specific situation.

What’s the difference between closing costs and prepaids?

Closing costs are one-time fees for services (appraisal, title, lender fees). Prepaids are advance payments for recurring expenses (taxes, insurance, interest) that fund your escrow account.

How much cash do I need at closing?

Total cash needed = Down payment + Closing costs - Seller concessions - Lender credits

On a $300,000 purchase with 5% down, 3% closing costs and $5,000 seller credit:

• Down payment: $15,000
• Closing costs: $9,000
• Seller credit: -$5,000
• Cash needed: $19,000

Can I get a gift for closing costs?

Yes, most loan programs allow gift funds for closing costs. You’ll need a gift letter stating no repayment is expected and documentation of the gift transfer.

When are closing costs due?

Closing costs are due at closing—the day you sign your final documents and the transaction is complete. You’ll bring a cashier’s check or wire the funds.

Why did my closing costs increase?

Common reasons:

• Property taxes higher than estimated
• Different title company selected
• Loan amount changed
• Closing date moved (prepaid interest adjustment)
• New required services discovered

Review your Closing Disclosure against the Loan Estimate. The lender must explain any significant increases.

Related Articles

• Seller Concessions: How to Get the Seller to Pay Your Closing Costs
• What Is Title Insurance? Why You Need It and What It Covers
• Closing Disclosure Explained: How to Read Your CD Line by Line
• Title Insurance Explained: What It Covers and Why You Need It