What are Closing Costs?

You’ve saved for your down payment and started looking at homes. But then you hear about something called closing costs—and wonder how much more you’ll need.

The costs associated with purchasing a home vary based on factors such as property type, financing arrangements, and the specific type of loan chosen. From down payments to closing costs, the following section will outline common expenses to help you prepare for a comprehensive understanding of your financial commitments in the home buying process.

Here’s a breakdown of what closing costs are, what they include, and how to plan for them.

What Are Closing Costs?

Closing costs are the fees and expenses you pay when finalizing your home purchase. On average, they range from 2.5% to 4% of the purchase price.

For example, on a $300,000 home, you might pay between $7,500 and $12,000.

1. Common Pre-Closing Costs

• Escrow (aka good-faith/earnest) deposit: typically 1% of the purchase price

• Inspection(s): varies $500-$1,000+

• Appraisal: around $500 to ensure the home’s value matches the loan amount
  

2. Common Closing Costs paid at closing

• Down Payment: % of purchase price your are approved for

• Survey: $300+

• Title Settlement Fee: $500-$1,000

• Title Binder Fee: $500-$1,000

3. Pre-Paid Interest

• Prepaid Taxes & Insurance: Upfront payments required at closing

• HOA Dues & Transfer Fees

• Lender Title Policy

• Lender Discount Points

• Loan Origination Fee: Paid to your lender for processing the loan Underwriting Fee

• Title Insurance & Search: Protects against ownership disputes (usually paid by the seller)

• Recording Fees: Charged by the county to officially record the sale

Who Pays Closing Costs?

• Both buyers and sellers have closing expenses.

• Ways to Reduce Closing Costs

• Shop different lenders

• Ask about lender credits

• Negotiate seller concessions

• First-Time Buyer Assistance

Many states and cities offer programs to help cover closing costs. Don’t leave free money on the table—explore what’s available with your lender.

Bottom line: Closing costs can feel like a surprise, but with the right preparation, they don’t have to derail your plans. As a general rule of thumb, your total costs to purchase a home, excluding the down-payment, typically hover around 3% of the total purchase price when securing a mortgage. However, if you're making a cash purchase, these costs can be considerably lower, often amounting to less than 1% of the total purchase price.

Want a personalized estimate of your closing costs? Reach out to us and we will be happy to walk you through it.