A top closing costs breakdown helps homebuyers understand where their money goes before finalizing a home purchase. Closing costs typically range from 2% to 5% of the home’s purchase price. For a $400,000 home, buyers should expect to pay between $8,000 and $20,000 at closing.
These fees cover services from lenders, title companies, government agencies, and insurance providers. Many first-time buyers feel surprised by the final bill because they focused only on the down payment. This guide explains each closing cost category so buyers can budget accurately and avoid last-minute stress.
Key Takeaways
- A top closing costs breakdown typically ranges from 2% to 5% of the home’s purchase price, totaling $8,000 to $20,000 on a $400,000 home.
- Closing costs include lender fees, title and escrow charges, government recording fees, and prepaid expenses like homeowners insurance and property taxes.
- Lender fees—including origination, appraisal, and underwriting—often represent the largest portion of any closing costs breakdown.
- Transfer taxes vary significantly by state, ranging from 0% in Texas to 4% in Delaware, so research local rates early in your home search.
- Reduce closing costs by comparing Loan Estimates from multiple lenders, negotiating seller concessions, and closing at month-end to minimize prepaid interest.
What Are Closing Costs?
Closing costs are fees paid when a real estate transaction reaches completion. They cover the administrative, legal, and processing expenses required to transfer property ownership from seller to buyer.
Buyers pay most closing costs, though sellers typically cover real estate agent commissions and sometimes contribute to buyer expenses through negotiation. The exact amount depends on the home price, loan type, location, and chosen service providers.
A closing costs breakdown generally includes:
- Lender fees for processing and underwriting the mortgage
- Title and escrow fees for verifying ownership and managing funds
- Government fees for recording the deed and transfer taxes
- Prepaid expenses like homeowners insurance and property taxes
Buyers receive a Loan Estimate within three business days of applying for a mortgage. This document provides a preliminary closing costs breakdown. The final Closing Disclosure arrives at least three days before closing and shows the exact amounts due.
Lender Fees
Lender fees make up a significant portion of any closing costs breakdown. These charges compensate the mortgage company for evaluating, processing, and funding the loan.
Origination Fee
The origination fee covers the lender’s cost to create the loan. It typically equals 0.5% to 1% of the loan amount. On a $320,000 mortgage, buyers might pay $1,600 to $3,200 for origination.
Discount Points
Discount points let buyers prepay interest to secure a lower rate. One point equals 1% of the loan amount and usually reduces the interest rate by 0.25%. Buyers who plan to stay in the home long-term often benefit from purchasing points.
Application and Underwriting Fees
Some lenders charge separate application fees ranging from $300 to $500. Underwriting fees, which cover the cost of reviewing financial documents and approving the loan, typically run $400 to $800.
Credit Report Fee
Lenders pull credit reports from all three bureaus. This fee usually costs $30 to $50 per applicant.
Appraisal Fee
An independent appraiser determines the home’s market value. Appraisal fees range from $350 to $700 depending on the property size and location. The lender requires this to confirm the home’s value supports the loan amount.
Title and Escrow Fees
Title and escrow fees protect both the buyer and lender during the transaction. These services verify ownership history and ensure funds transfer correctly.
Title Search and Examination
A title company researches public records to confirm the seller has legal authority to transfer ownership. This search identifies any liens, judgments, or claims against the property. Title search fees range from $200 to $400.
Title Insurance
Title insurance protects against undiscovered ownership disputes or defects. Buyers typically purchase two policies:
- Lender’s title insurance protects the mortgage company and is required for most loans ($500 to $1,000)
- Owner’s title insurance protects the buyer’s equity and is optional but recommended (0.5% to 1% of purchase price)
Escrow or Settlement Fees
The escrow company acts as a neutral third party. It holds funds, coordinates document signing, and disburses payments at closing. Escrow fees typically cost $500 to $2,000 depending on the transaction size and location.
Attorney Fees
Some states require an attorney to review closing documents or conduct the settlement. Attorney fees range from $500 to $1,500 where required.
Government and Recording Fees
Government fees appear on every closing costs breakdown. These charges fund local and state services related to property transfers.
Recording Fees
County offices charge recording fees to file the deed and mortgage in public records. These fees typically cost $50 to $250 depending on the jurisdiction and document length.
Transfer Taxes
Many states and municipalities charge transfer taxes when property changes hands. Rates vary significantly by location:
- Delaware charges 4% of the sale price (split between buyer and seller)
- California charges $1.10 per $1,000 of value
- Some states like Texas charge no transfer tax
Buyers should research local transfer tax rates early in the home search. These fees can add thousands to closing costs in high-tax areas.
Flood Certification
Lenders require flood zone determination to assess insurance requirements. This certification costs $15 to $25 and identifies whether the property sits in a FEMA-designated flood zone.
Prepaid Expenses and Escrow Deposits
Prepaid expenses and escrow deposits often surprise buyers because they extend beyond transaction fees. These costs cover future obligations the lender wants secured upfront.
Homeowners Insurance Premium
Lenders require proof of homeowners insurance before closing. Buyers typically prepay the first year’s premium, which averages $1,500 to $3,000 depending on coverage and location.
Prepaid Interest
Buyers pay interest from the closing date through the end of that month. Closing early in the month means more prepaid interest. On a $320,000 loan at 7% interest, daily interest equals about $61.
Property Tax Escrow
Lenders collect two to six months of property taxes upfront to establish an escrow account. This reserve ensures funds exist for future tax payments. The amount depends on local tax rates and closing timing.
Mortgage Insurance Premium
Buyers putting less than 20% down usually pay private mortgage insurance (PMI). Some loans require an upfront PMI premium at closing, which can equal 1% to 2% of the loan amount. FHA loans charge a 1.75% upfront mortgage insurance premium regardless of down payment size.
How to Reduce Your Closing Costs
Buyers have several strategies to lower their closing costs breakdown total.
Compare Loan Estimates
Shopping multiple lenders saves money. Request Loan Estimates from at least three lenders and compare origination fees, discount points, and third-party charges. Small differences in lender fees add up quickly.
Negotiate With the Seller
Sellers can contribute toward buyer closing costs, called a seller concession. FHA loans allow seller contributions up to 6% of the sale price. Conventional loans permit 3% to 9% depending on down payment size. Seller concessions work best in buyer-friendly markets.
Ask About Lender Credits
Lenders sometimes offer credits to offset closing costs in exchange for a slightly higher interest rate. This approach reduces upfront expenses but increases monthly payments. Buyers who plan to refinance or sell within a few years may benefit.
Close at Month-End
Closing late in the month reduces prepaid interest charges. A buyer closing on the 28th pays only three days of prepaid interest instead of 28 days.
Waive Optional Services
Some closing costs are optional. Buyers can decline owner’s title insurance (though this carries risk) or choose less expensive service providers for pest inspections and surveys.