Takeaways
- Mortgage closing costs are expenses and fees to complete a real estate deal.
- Agreeing to the closing costs is a prerequisite for completing a real estate deal.
- Closing costs are typically between 2% and 5% of a home’s purchase price.
- Buyers and sellers may be required to pay closing costs.
- Mortgage closing costs typically include origination fees, real estate commissions, taxes, record-keeping fees, and insurance payments.
Buying a home is a major financial milestone. While most buyers focus on the property's price, many are surprised by the additional costs of finalizing the deal. These extra costs, commonly referred to as mortgage closing costs, can significantly impact your home-buying budget.
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What Are Mortgage Closing Costs?
Mortgage closing costs are the fees and expenses required to complete a real estate transaction. They are paid at the seller's closing when the property ownership officially transfers from the seller to the buyer. Closing costs cover a variety of services, including loan processing, property evaluations, legal filings, and taxes.
These costs typically range from 2% to 5% of a home’s purchase price. The current average sales price for a home in the United States is $416,900, which means closing costs might fall between $8,338 and $20,845.[1] These funds are separate from your down payment and must be paid before the property is officially yours.
>> Buying your first home? Read these 6 Hidden Costs of Homeownership
How Mortgage Closing Costs Work
Mortgage closing costs consist of fees charged by multiple parties involved in the homebuying process. A few weeks before closing, your lender will provide you with a Loan Estimate that outlines expected closing costs. Then, at least three days before your scheduled closing date, you will receive a Closing Disclosure with the finalized amounts and terms.
Some closing costs, such as government recording fees, are non-negotiable, while others can vary between lenders or service providers. If you want to save money, shopping around for certain services, like title insurance or home inspections, is possible. Lenders may offer to cover some of your closing costs in exchange for a slightly higher interest rate.
>> Need lower mortgage payments? Consider Recasting Your Mortgage
How to Calculate Closing Costs
While closing costs vary depending on the location, loan type, and home price, you can still reasonably estimate them by applying a percentage range to the purchase price of your home.
- 3% to 4% of the purchase price is what you should budget for closing costs.
Remember, your lender will provide more accurate numbers during the mortgage application process. Keep in mind that you may be able to negotiate with the seller to cover some of these costs, especially in a buyer’s market.
Who Pays Closing Costs?
Both buyers and sellers are responsible for different portions of closing costs. Buyers typically pay mortgage and property-related services fees, while sellers cover costs associated with transferring the property. However, who pays for specific fees can vary depending on local customs and what is agreed upon during negotiations.
Read More: What Is a Listing Agent?
Buyer Closing Costs
Here are some typical closing costs that buyers should expect to pay:
- Appraisal Fee: The lender requires a professional home appraisal to confirm the home's value. This fee usually ranges from $300 to $450.
- Escrow Account Funds: Lenders often require buyers to prepay a portion of property taxes and homeowners insurance into an escrow account.
- Mortgage Insurance Fees: If your down payment is less than 20%, you may need to pay for private mortgage insurance (PMI), which protects the lender in case of default.
- Government Recording Fees: Local governments charge a fee to officially record the property deed and mortgage documents.
- Prepaid Expenses: These include prepaid interest (from the closing date to the end of the month), property taxes, and insurance premiums.
- Title-Related Costs: These fees cover a title search to confirm legal ownership and title insurance to protect against future disputes.
- HOA Fees: If the property is part of a homeowner’s association, you may need to pay transfer fees or yearly dues.
>> Need to buy a home? Consider hiring a Buyer’s Agent
Seller Closing Costs
Sellers also have costs to pay at closing, primarily related to the transfer of ownership. While these costs are deducted from the seller’s proceeds, they can still amount to a substantial sum.
- Real Estate Agent Fees: Sellers usually pay their agent and the buyer’s agent’s commissions. The current average real estate commission in the US is 5.32%. [2] So, on the sale of a $450,000 home, the seller would pay around $23,940 in commission.
- Property and Transfer Tax: Sellers may be responsible for paying transfer taxes or recording fees, which vary by location and are based on the property's sale price. Read more about property taxes.
Smart Summary
Mortgage closing costs are the collection of fees and expenses that buyers and sellers must pay to complete a home sale. Buyers are responsible for most loan-related fees, while sellers cover commissions and taxes on the property's transfer. By carefully reviewing your Loan Estimate and Closing Disclosure, you can understand these costs ahead of time and budget properly to avoid surprises on closing day.
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(1) Federal Reserve Bank of St. Louis. Median Sales Price of Homes Sold for the United States. Last Accessed April 25, 2025.
(2) Clever.com. Average Real Estate Commission Rate. Last Accessed April 25, 2025.
