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Home Buying

A Home Buyer’s Guide to Closing Costs

Written by
Lindsey Hood
July 15, 2019

When budgeting for a home, it’s important to understand all the costs associated with the purchase. Some numbers are pretty clear–the price of the home, the down payment you’ll need–but what about closing costs? These costs are often a mystery to home buyers until the very end when they sit down at the closing table to sign the papers. And yet, closing costs can be a significant expense for home buyers that, in the midst of everything else, can easily be forgotten.

Before you make one of the biggest (if not the biggest) purchases of your life, it’s a good idea to have a handle on what you’ll be expected to pay for come closing time. That’s why we’re breaking down everything you need to know about closing costs as a home buyer. From what they are to what’s included, you’ll be an expert by the time you’re done reading this. Let’s jump in and get started with the basics:

What are closing costs?

Other than the obvious mortgage and down payment costs, there are many other fees associated with the purchase of a home. All of these fees make up your closing costs, which come due when you close on your loan. Closing costs cover a wide range of fees including the cost of an appraisal, home inspection fees, loan-related fees, and more. Don’t worry, we’ll give you a run down of the most common fees included in your closing costs in a bit.

Who pays for closing costs?

When we think of closing costs, we often think of buyers, but in actuality, both the buyer and the seller are responsible for paying these costs. Costs for the seller typically include the real estate commission and title transfer fees. Buyers, on the other hand, usually pay the mortgage fees, appraisal fees, and inspection fees. However, these fees are negotiable and in some cases a seller will agree to pay for a portion of these expenses.

How much are closing costs?

On average, home buyers can expect to pay between 2 and 5% of the loan amount in closing costs. Lenders are required by law to provide borrowers with a Loan Estimate within three days of applying for a mortgage. This estimate lays out the expected closing costs, estimated interest rate, and monthly payment. Even though these costs are subject to change, what’s presented should be very close to the final charges you’ll see at closing.

Where can you find your closing costs?

At least three days before closing, you should receive a Closing Disclosure which outlines all the costs and terms associated with your loan and home purchase. The closing disclosure will include the total amount in closing costs due, as well as a detailed breakdown of all the fees that make up that total. These fees are subject to change but they should not vary significantly from what is shown on the disclosure.

When are closing costs due?

Closing costs are due at closing when you sign your loan documents and officially become a homeowner. Closing costs are paid either by wiring the funds to an escrow account or by cashier's check.

Are closing costs negotiable?

Some closing costs can be negotiable including attorney fees, recording costs, and messenger fees. It’s also possible that the seller may chip in to cover some of the buyer’s closing costs to seal the deal. But in competitive real estate markets, this may not be likely.

Now that you have a better handle of what closing costs are, who pays for them, and how much you can expect to pay, let’s jump into the nitty-gritty. Here are the most common fees included in a home buyer’s closing costs:

Property-Related Costs

Home Inspection Fee

Average Cost: $300-500

Typically, your lender will require a home inspection to ensure the home you’re buying is in good condition. This fee covers the cost of the inspection.

Property Appraisal Fee

Average Cost: $300-400

Your lender will typically require that your property is appraised by a professional home appraiser to find out the true value of your home. This is mainly so the lender doesn’t lend you more money than you need to buy the home. This fee pays for the cost of the appraisal.

Escrow Fees

Average Cost: Varies

This fee, sometimes referred to as a closing fee, is paid to the title company, escrow company or real estate attorney for conducting the closing of the transaction as an independent third party.

Flood Certification 

Average Cost: $15-20

If the home you’re buying is located near a flood plain (or flood zone), your lender may require documentation to confirm this. To do this, you’ll need to get a certification from the Federal Emergency Management Agency (FEMA).

Recording Fee

Average Cost: Varies (typically by county)

Your local city or county recording office will charge a fee for recording the purchase or sale of a home and updating the public land records.

Survey Fee

Average Cost: $300-450

This fee is for the survey of your property. A property survey verifies property lines and makes note of any shared structures like fences.

Property Taxes

Average Cost: Varies

Typically, you’ll be responsible for paying two months of city and county property taxes at closing.

Transfer Taxes

Average Cost: Varies

This tax is imposed when the title is transferred from one owner to another. The cost varies by municipality.


Annual HOA Assessment

Average Cost: Varies

If you’re moving into a development with a homeowners association (HOA), you may be required to pay their annual fee upfront. This cost does not include the HOA transfer fees which the seller is usually responsible for paying.

Loan-Related Costs

Loan Application Fee

Average Cost: $200-400

This fee covers the cost of processing your loan application. It often includes the cost of a credit check and the administrative costs of your lender. Lenders don’t always charge an application fee and if they do, the fee can often be negotiated.

Loan Origination Fee

Average Cost: 0.5-1% of your loan amount

This fee is charged by your lender for the administrative duties associated with evaluating and preparing your loan. It may include other fees as well, such as notary fees or the lender’s attorney fees, and may also be referred to as an underwriting, administrative, or processing fee.

Assumption Fee

Average Cost: Typically 1% of the loan balance

If you assume or take over the remaining balance of the seller’s loan, you may be required to pay an assumption fee.

Attorney Fees

Average Cost: Varies (based on hourly rate)

This cost is for an attorney to review your closing documents on your or your lender’s behalf. This fee is not required in all states, but is in Texas.

Prepaid Interest

Average Cost: Varies (based on loan amount)

Buyers are responsible for paying interest that accrues between the date of your closing and the due date of your first monthly mortgage payment. For instance, if you close on August 15th, you’ll owe interest on your loan from August 15th to September 1st.

Discount Points

Average Cost: 1 point equals 1% of the loan

Discount points are paid to your lender at closing in order to reduce the interest rate on your loan. Paying this additional upfront cost is generally only advised when you plan to stay in the home for a long time.

Insurance-Related Costs

Mortgage Insurance Application Fee

Average Cost: Varies by lender

As the name implies, this fee covers the cost of your application for PMI insurance. If you’re unable to put 20% down on your home, then you’ll be required to get PMI insurance, which insures your lender if you end up defaulting on your loan.

Upfront Mortgage Insurance

Average Cost: 0.55%-2.25% of your mortgage insurance purchase price

Your lender may require you to pay a portion of your mortgage insurance upfront at closing. This is typically either the first year’s mortgage insurance premium or a lump-sum payment covering the life of the loan. If you’ll have PMI, you’ll likely have to pay the first month’s premium payment at closing.

FHA, VA, or USDA Loan Fees

Average Cost: FHA: 1.75% of your loan plus a monthly fee; VA: 1.25%-3.3% of your loan, dependent on your down payment; USDA: 1% of your loan

FHA, VA, and USDA loan types charge different fees than those of a conventional loan. If your loan is insured by the Federal Housing Administration, you’ll be required to pay a portion of your FHA mortgage insurance premium upfront. If your loan is guaranteed by the Department of Veterans Affairs or the U.S. Department of Agriculture, you’ll have to pay guarantee fees at closing.

Homeowners’ Insurance

Average Cost: Varies

Homeowners’ Insurance covers the cost of any damage to your home. Typically, you’ll pay the first year’s insurance premium upfront at closing.


Title-Related Fees

Title Search Fee

Average Cost: $75-200

This fee is paid to the title company to ensure the title is clear. In other words, that the individual selling the home actually owns it. They’ll also make sure there are no claims or liens against the property.

Lender Title Insurance 

Average Cost: Varies

Generally, lenders will require a loan insurance policy. This protects the lender in the instance there is an error with the title search and someone claims ownership on the property after it’s been sold. The policy is effective for the life of the loan.

Owner Title Insurance 

Average Cost: 0.5-1% of the purchase price

The owner’s title insurance policy protects you (the buyer) if someone comes forward to claim ownership of your home after closing. This lasts for as long as you own the property.

The costs of purchasing a home can really add up, but it’s better to be informed than left in the dark. When you set out to buy a home, it’s a good idea to budget in 2-5% of what you’ve saved to go towards closing costs. That way, when it comes time to sit down at the closing table, you’ll be fully prepared.

About the Author
Lindsey Hood

Lindsey is Jovio’s marketing guru. After studying Economics and Finance at the University of Delaware, she found her true passion in marketing. When she’s not writing about real estate, she enjoys catching up on the latest Netflix series, exploring Austin, and traveling with her husband.

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