Closing Costs
What are (and how much) are closing costs?
Closing costs are the additional expenses and fees related to buying and selling a home. These costs are separate from the down payment and and not included in the sale price.
For financed buyers, closing costs are generally 3-5% of the purchase price, made up of:
- Appraisal and inspection fees: $300-$500, each
- Earnest money deposit: 1-3% of home price
- Loan origination fee: may be charged by the lender for creating the loan, ranging from .5% to 1% of the loan amount
- Loan discount points: optional upfront fees due to the lender for lower interest rates
- Private mortgage insurance (PMI): required for down payments less than 20%
- Loan processing fee: $450
- HOA dues: one month upfront (if applicable)
- Homeowners insurance: varies
- Title insurance: a one-time fee due to the lender (and if applicable, your title company
- Half of escrow and closing fees: flat fee or 1% of purchase price due to the escrow company; split 50/50 between buyer and seller
For sellers, closing costs can reach 8-10% of the purchase price and are made up of:
- Agent commission: 4-6% of purchase price
- Transfer tax (“Title Fee”): varies by state
- Owner’s title insurance: $1000-$4000
- Attorney fees (if applicable): varies
- Prorated property taxes: varies
- HOA fees: paid up to the close date (if applicable)
- Credit towards closing costs (if applicable): varies
- Half of escrow and closing fees: flat fee or 1% of purchase price due to the escrow company; split 50/50 between buyer and seller
How do closing costs differ between financed and cash purchases?
Simply put, the closing costs of cash purchases don’t include any closing costs that would otherwise be due to the lender. Therefore, there would be no appraisal, loan processing, loan origination, loan discount points, PMI, or lender’s title insurance fees paid by the buyer. This is relevant to the seller in cases where the seller offers credit to the buyer towards closing costs.
How can a buyer lower their closing costs?
If you’re aiming to lower your closing costs, you should: compare loans before choosing one and choose a lender with lower fees; negotiate closing cost discounts with the seller; avoid loan discount points; and, consider buying less home.
