Closing Costs

What are closing costs?

Updated March 10, 2022

Whether you’re buying your first home or are a veteran home buyer, closing costs on a new property are always part of the equation. Buying a home is never as simple as writing one check and moving in; there are fees beyond the price of the property itself, which buyers and sellers are responsible for in order to finalize a real estate transaction. While buyers have to pay most of these fees, the seller is often required to cover things like the real estate agent’s commission (usually around 6%), the title insurance policy and a property or deed transfer tax—all which can amount to up to 10% of the sale price. Though buyer fees vary depending on the state in which you live, one thing is certain: They tend to add up quickly. 

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And not to mention, there are a host of other costs, such as a survey, which ensures that the person selling actually owns the home and there are no claims against the property, that, while not wrapped up in closing costs, are required before the deal is done.  

Even after the terms are agreed upon, and before the deal is done, there are closing costs you'll want to be aware of. Credit: Cytonn Photography/Unsplash

Here’s a breakdown of some of the most common types of costs a buyer might be responsible for paying. Keep in mind, some of these fees may be paid to the seller or added to your mortgage. Check with your attorney for more specifics. 

  • Appraisal
  • These cover the expense of having the property professionally appraised by a third-party company to find out its value. An appraisal is important because it determines how much lenders will allow you to borrow and whether or not you are overpaying for a property. Fees can range from $300 to $500.
  • Building Inspection
  • Lenders often require a home inspection, especially if you’re seeking a mortgage, to make sure there are no issues with the structure of the house. If any issues are found, you may be able to negotiate a lower sale price—or even get out of the contract if the problems are significant enough. Home inspection fees typically range from $300 to $500.
  • Legal Fees 
  • Many states require you to have an attorney in order to close on a home. The fees typically cover paperwork for your title transfer and any other coordination needed to close. Fees can range significantly depending on the attorney, where you live and the specific transactions. 
  • Title Insurance
  • This insurance protects you from costs associated with possible title complications. The cost varies but is generally 0.5% to 1% of the purchase price of the home.
  • Private Mortgage Insurance (PMI)
  • If your down payment is less than 20% of the purchase price, you might need to secure private mortgage insurance, which essentially protects the lender just in case you default on your payments. The average premium is 2.5% of the mortgage, with a portion of the total premium due at closing. 
  • Homeowner’s Insurance   
  • Most mortgage lenders will require you to purchase homeowner’s insurance, which provides protection for your new home, and its contents, from vandalism, damage, flood and so on. 
  • Cost depends on factors such as home size, location, type of construction and coverage limits. 
  • Prepaid Interest 
  • Many lenders require buyers to pay the interest that accrues on the mortgage between the time you close on the home to the end of your first month of ownership. The amount depends on the size of your loan.
  • Escrow Fees
  • This is a reserve fund designed to cover obligations such as three months of real estate taxes or three months of fire/flood insurance.  
  • Property Taxes
  • Buyers are usually required to pay two months’ worth of city and county property taxes at the time of closing.
  • Recording Fees 
  • These are fees paid to the local government to record the purchase transaction. They can range from $40 to $60.