Mortgage Closing Costs: Your Guide to Understanding Fees and Expenses

• What are mortgage closing costs?
• Common closing costs for buyers
• Common closing costs for sellers
• Closing costs for refinancing
• How to estimate and reduce closing costs
• FAQs

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• Mortgage closing costs cover everything from appraisal fees to survey fees to title insurance.
• You'll probably pay thousands in closing costs, but shopping for lenders and negotiating will help you pay less.
• State governments and some lenders offer loans or grants to help with closing costs.

When you buy a home, you need to budget for two major upfront costs: your down payment and the closing costs that come with your loan.

Your down payment is like a deposit toward your home. Closing costs, on the other hand, go to various third parties in your transaction — the title company, your real estate agent, the appraiser, etc. Here's what to know about these costs.

What are mortgage closing costs?

Closing costs are separate from your down payment. When you budget for buying a home, you'll need to factor in a down payment, closing costs, and the amount of money you want to have left in savings after closing.

Definition

Closing costs are fees you pay when you buy a home. Some go to your lender, while others pay third-party vendors like appraisers and attorneys. You'll pay them at the end of the transaction — when the title is officially transferred from seller to buyer.

Who pays closing costs?

Both buyers and sellers pay closing costs, but the specific fees you'll cover depend on the situation and your negotiations. Generally, the bulk of closing costs will fall on the buyer.

Closing costs come with traditional mortgage loans, as well as refinances. Refinancing closing costs typically come to 3% to 5% of your loan principal, according to the Federal Reserve. That's $3,000 to $6,000 for every $100,000 borrowed. You may also owe closing costs on home equity loans and home equity lines of credit (HELOCs).

Typical range

Closing costs can vary quite a bit depending on where you're located and who's involved in your transaction. According to CoreLogic's ClosingCorp, though, the average mortgage closing costs in 2021 were $3,860 without taxes and $6,905 with taxes. 

Generally speaking, buyers can expect to pay between 2% and 5% of their loan amount in closing costs. Sellers may pay more, as they often foot the bill for both real estate agent commissions.

Common closing costs for buyers

The term "closing costs" doesn't just refer to a lump sum you pay for closing on the home. Each dollar goes toward a specific expense. Here are some of the most common buyer closing costs:

Lender fees

These include things like application fees, underwriting fees, origination fees, and processing fees. 

Third-party fees

These are fees that go to various third parties in your transaction — your appraiser, home inspector, pest inspector, etc. They also include things like title search and insurance, surveyor fees, and credit report fees.

Government fees

These are local costs and are highly dependent on where you're buying or selling a home. They include recording fees, transfer taxes, and any government-mandated inspections.

Prepaid expenses

Prepaids are items your lender wants you to pay for ahead of time. These generally include things like property taxes, your home insurance premiums, and interest for the period between closing and your first mortgage payment. 

Escrow account deposits

Lenders use escrow accounts to cover future property tax bills and home insurance premiums. They may require you to make an upfront deposit into this account to get started.

Common closing costs for sellers

Sellers pay closing costs, too. Though the list isn't typically as long as for buyers, it can come to a hefty amount. These seller closing costs usually include:

Real estate commissions

This is usually the biggest cost for sellers and usually amounts to 5 to 6% of the total sale price, which is then split between both real estate agents.

Title-related fees

Sellers may also cover things like the title search and title insurance, depending on how negotiations go.

Transfer taxes

These are taxes paid to the state or local government to legally transfer ownership of the property.

Attorney fees

In some states, attorneys are required on real estate transactions, so sellers may face these costs as well.

Prorated property taxes and HOA fees

Sometimes, sellers may need to reimburse buyers for prepaid property taxes, HOA fees, or other prepaid items. 

Closing costs for refinancing

Refinancing your mortgage comes with closing costs, too. Here's what to expect if you refinance:

Similar to buyer's costs

When you refinance your mortgage, you'll pay many of the same fees you did when you originally took out the loan. These may include lender fees, appraisal fees, title insurance, government fees, and more.

No real estate commissions

You won't need a real estate agent to refinance your loan, so you won't owe commissions this time around. This can significantly reduce your costs.

How to estimate and reduce closing costs

Being prepared for your closing costs is critical, as they often amount to a fairly large sum. To do this, you can:

Read your loan estimate

When you're first shopping for a loan, lenders will give you a loan estimate form, which will break down all the estimated costs each loan comes with. You can use this to get a rough gauge on your closing costs, as well as to compare loan options and lenders.

Look at your closing disclosure

Your lender is required to give you a closing disclosure no later than three days before your closing date. It will detail all the closing costs you'll owe, as well as how much money you will be expected to bring to closing.

Negotiate your closing costs

Ask the lender if you can waive or pay less on lender fees, such as the application fee or origination fee.

You'll have to pay fees that go toward third-party vendors like the appraiser and home inspector. But the amounts on the loan estimate are likely for the lender's preferred vendors — meaning you don't necessarily have to use that company. You can look for other vendors that charge less.

Shop around for lenders

All mortgage lenders charge different fees, so pick your lender carefully. Choose your top three or four lenders and ask each for a loan estimate. You'll then be able to compare how much you'd pay with each lender. Ideally, you'll find a lender that charges relatively low fees and a low interest rate.

If your top lenders don't have any assistance programs, search for loans and grants in your state. Each U.S. state has a program for first-time homebuyers who qualify.

Mortgage closing cost FAQs

Some lenders allow you to roll your closing costs into the loan, but be warned: This increases your loan balance and leads to higher monthly payments and more long-term interest costs.

Some closing cost fees, including mortgage points and prepaid interest, may be tax-deductible. Talk to a tax professional for specific guidance.

It depends on a lot of factors, but you can generally expect to pay between 2% and 5% of the loan amount in closing costs. You can use a mortgage closing costs calculator to get a more accurate estimate.

Yes, refinances come with closing costs, just as first mortgages do. You can expect to pay 2% to 5% of the loan amount when refinancing.

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