When you buy a home, closing costs are the fees you pay to seal the deal. Some closing costs are associated with your loan, while others are for the property and transaction. Either way, these fees can add up — closing costs range from 2% to 5% of the purchase price — catching some homebuyers off guard.
You might be wondering, what is included in closing costs? Here’s a full rundown of common closing costs.
- Application fee. This is what you pay the lender to process your loan. It is nonrefundable and costs up to $500.
- Assumption fee. It’s a fee charged if you take over the seller’s mortgage. For a conventional loan, this costs $800 to $1,000.
- Credit reporting fee. Your lender will check your credit before setting an interest rate for your loan. This fee is typically less than $30.
- Discount points. One way to score a lower interest rate is to buy discount points upfront. Each point you buy costs 1% of the loan amount and reduces your interest rate by a certain amount.
- Escrow deposit. Your lender likely will have you set up an escrow account for taxes and homeowners insurance. You typically need to pay the first two months of these expenses at closing.
- Loan origination fees. This goes toward creating and underwriting your loan. Origination fees generally cost about 1% of the total loan amount.
- Prepaid interest. This fee covers interest that accumulates on the principal between the closing date and when your first mortgage payment is due. The amount of interest that accrues will depend on your loan amount, interest rate, and the span of time between your closing and first payment.
- Rate lock fee. Interest rates change frequently. This fee locks in your interest rate so that it doesn’t vary before your closing. Rate locks are often offered in 30-, 45-, or 60-day periods.
- Underwriting fee. Sometimes the underwriting fee comes combined with the origination fee, while other lenders will split them into two different fees. Underwriting fees can cost up to $795.
- Appraisal fee. During the appraisal, the home is inspected to confirm that the value of the home matches the loan amount. Appraisals usually cost somewhere between $300 and $600.
- Flood certification fee. This is a fee you may need to pay if your home is located near a flood plain. It costs about $15 to $25, and the funds go to the Federal Emergency Management Agency.
- Lead-based paint inspection fee. Homes built before 1978 need to be inspected for lead paint. This typically costs about $300.
- Pest inspection fee. Certain states and loan types may require the home be inspected for pests. It typically costs $100, and could be covered by the seller or lender.
- Survey fee. A land survey will confirm the property boundaries and list any easements that give a third party the right to use the land. Land surveys are required by some states and cost up to $900.
- Courier fee. Some lenders charge this fee to cover transporting your mortgage documents. It should cost about $30.
- Recording fee. This fee covers the process of updating public records to reflect the ownership change. It costs about $125.
- Department of Agriculture loan guarantee fee. Loans backed by the USDA require an upfront fee that costs a maximum of 3.5% of the total loan amount.
- Veterans Affairs loan funding fee. Loans backed by the VA also require an upfront fee in exchange for the backing.
- If your down payment is less than 5%, then the fee is 2.3% of the total loan value.
- If your down payment is between 5% and 10%, then the fee is 1.65% of the total loan value.
- If your down payment is 10% or more, then the fee is 1.4% of the total loan value.
Homeowners Association Costs
- HOA fees. Some homes belong to homeowners associations that maintain shared spaces and set certain rules. At closing, you’ll need to pay a portion of that month’s HOA fees.
- HOA transfer fee. This fee covers transferring HOA membership from the seller to the buyer. It’s often covered by the seller.
- Federal Housing Administration mortgage insurance. Loans backed by the FHA require mortgage insurance. Currently, this costs 1.75% of the total loan amount.
- Homeowners insurance. At closing, you need to pay for the first year of homeowners insurance.
- Private mortgage insurance. If you get a conventional loan and make a down payment of less than 20%, then you’ll have to purchase PMI, and pay either a monthly premium or an upfront premium. PMI typically costs 0.5% to 1.0% of the total loan amount.
- Property tax. At closing, you owe the first six months to a year of property taxes.
- Tax monitoring and status research fees. Before you close on your home, a third-party professional will verify that your property taxes are accurate and up to date. This fee covers that service.
- Transfer tax. This fee covers the cost of updating the home’s title and transferring ownership from the seller to the buyer.
- Attorney fees. Some states require an attorney to attend your closing and oversee the transaction. The fee is based on the attorney and your location.
- Closing or escrow fee. If an attorney didn’t oversee the closing, then this fee is paid to the escrow company that conducts the transaction.
- Real estate agent commission. The seller typically covers the real estate agent commission for both agents, which runs about 6% of the sale price. In cases where the buyer must pay their own agent, this costs 3% of the sale price.
- Lenders title insurance. This protects the lender if there are issues with the home’s title and you lose your home.
- Owners title insurance. This coverage protects the homeowner in the event someone makes a legal claim against the property that predates the sale.
- Title search fee. A title search is conducted to determine whether there are any disputes or claims related to your home’s title. You can expect to pay $200 to $400 for this.
Differences in States
States have their own requirements when it comes to closing costs. Some states require a pest inspection or survey fee, while others don’t. Where you live also affects how much you pay in property taxes and other fees. And some states require that an attorney sign off on the closing — those fees vary by location as well.
Sample Closing Disclosure
Your closing disclosure will be sent to you at least three days before your closing, and will contain an itemized list of your closing costs. To get an idea of what a closing disclosure looks like, take a look at this sample closing disclosure from the Consumer Financial Protection Bureau.