A closing costs breakdown helps homebuyers understand the fees they’ll pay before getting the keys. These costs often surprise first-time buyers who focus only on the down payment. The total can add thousands of dollars to your home purchase, money you need to budget for upfront.
Closing costs include fees from lenders, title companies, government agencies, and other service providers. They typically range from 2% to 5% of the home’s purchase price. On a $400,000 home, that means $8,000 to $20,000 in additional expenses.
This guide provides a complete closing costs breakdown. It covers what each fee pays for, how much buyers typically spend, and practical ways to lower these expenses.
Key Takeaways
- A closing costs breakdown typically ranges from 2% to 5% of your home’s purchase price, meaning $8,000 to $20,000 on a $400,000 home.
- Closing costs include lender fees (origination, underwriting, credit reports) and third-party fees (appraisal, title insurance, recording fees, and escrow deposits).
- Request Loan Estimates from at least three lenders to compare fees and potentially save $1,000 or more on your closing costs breakdown.
- Negotiate seller contributions toward closing costs—FHA loans allow up to 6% and conventional loans allow 3% to 9% depending on your down payment.
- Review your Closing Disclosure carefully at least three days before closing to catch unexpected charges or errors.
- First-time buyer programs and strategic timing (closing at month’s end) can significantly reduce the amount you owe at closing.
What Are Closing Costs?
Closing costs are the fees and expenses buyers pay to finalize a real estate transaction. They cover services required to transfer property ownership from the seller to the buyer.
These costs go to multiple parties involved in the transaction. Lenders charge fees to process and underwrite the mortgage. Title companies verify ownership and provide insurance. Government offices record the deed and assess taxes. Attorneys review documents in states that require their involvement.
Closing costs differ from the down payment. The down payment goes toward the home’s purchase price. Closing costs pay for the services that make the sale possible.
Most closing costs are due on the closing day. Buyers receive a Closing Disclosure form at least three business days before closing. This document lists every fee in the closing costs breakdown. It allows buyers to review charges and ask questions before signing.
Some fees are negotiable. Others are set by government agencies or based on the loan amount. Understanding each item in your closing costs breakdown helps you identify where you might save money.
Common Fees Included in Closing Costs
A closing costs breakdown includes dozens of individual charges. These fees fall into two main categories: lender fees and third-party fees.
Lender Fees
Lender fees cover the cost of processing, underwriting, and funding your mortgage.
Loan origination fee: This fee compensates the lender for creating your loan. It typically equals 0.5% to 1% of the loan amount. On a $320,000 mortgage, expect to pay $1,600 to $3,200.
Application fee: Some lenders charge a flat fee to process your application. This fee ranges from $75 to $500.
Underwriting fee: Underwriters assess your financial qualifications and the property’s value. This fee usually costs $400 to $900.
Credit report fee: Lenders pull your credit history from the three major bureaus. This charge runs $25 to $50.
Discount points: Buyers can pay points upfront to lower their interest rate. One point equals 1% of the loan amount and typically reduces the rate by 0.25%.
Third-Party Fees
Third-party fees go to companies and agencies outside your lender.
Appraisal fee: A licensed appraiser determines the home’s market value. This service costs $300 to $700 for a single-family home.
Title search and insurance: Title companies research the property’s ownership history. They check for liens, disputes, or claims. Title insurance protects buyers and lenders if problems surface later. These fees total $500 to $3,000.
Home inspection fee: While optional for some loans, most buyers hire an inspector to evaluate the property’s condition. Inspections cost $300 to $500.
Survey fee: A surveyor confirms the property’s boundaries and identifies encroachments. This costs $350 to $700.
Recording fees: Local governments charge to record the deed and mortgage. Fees vary by location but typically run $50 to $250.
Transfer taxes: Some states and municipalities charge taxes when property changes hands. Rates differ widely by location.
Homeowners insurance premium: Lenders require proof of insurance before closing. Buyers often prepay the first year’s premium, which averages $1,500 to $3,000.
Escrow deposits: Lenders may collect two to three months of property taxes and insurance payments to establish an escrow account.
How Much Should You Expect to Pay?
The total closing costs breakdown depends on several factors. Loan amount, property location, and lender policies all affect the final number.
National averages provide a starting point. Buyers typically pay 2% to 5% of the purchase price in closing costs. The median sits around 3%.
Here’s what that looks like at different price points:
| Home Price | Low Estimate (2%) | Mid Estimate (3%) | High Estimate (5%) |
|---|---|---|---|
| $250,000 | $5,000 | $7,500 | $12,500 |
| $350,000 | $7,000 | $10,500 | $17,500 |
| $500,000 | $10,000 | $15,000 | $25,000 |
Location matters significantly. States with high transfer taxes or attorney requirements see higher closing costs. New York, Delaware, and Pennsylvania rank among the most expensive states. Missouri, Indiana, and Wyoming tend to have lower costs.
Loan type also influences your closing costs breakdown. FHA loans require an upfront mortgage insurance premium of 1.75% of the loan amount. VA loans charge a funding fee ranging from 1.25% to 3.3%. Conventional loans may have lower upfront costs but require private mortgage insurance if the down payment is below 20%.
Buyers should request Loan Estimates from multiple lenders. This standardized form shows estimated closing costs for easy comparison. The Closing Disclosure will show final costs, which should match the Loan Estimate closely.
Tips for Reducing Your Closing Costs
Buyers have more control over their closing costs breakdown than many realize. These strategies can lower the total amount due at closing.
Shop around for lenders. Fees vary widely between lenders. Get Loan Estimates from at least three sources. Compare origination fees, discount points, and other lender charges. A difference of $1,000 or more is common.
Negotiate with the seller. Sellers can contribute to closing costs as part of the purchase agreement. This works especially well in buyer-friendly markets. FHA loans allow sellers to contribute up to 6% of the purchase price. Conventional loans cap seller contributions at 3% to 9%, depending on down payment size.
Ask about lender credits. Some lenders offer credits that offset closing costs in exchange for a slightly higher interest rate. This trade-off makes sense for buyers who plan to refinance or sell within a few years.
Close at month’s end. Prepaid interest charges cover the days between closing and the first mortgage payment. Closing on the 28th means paying three days of interest. Closing on the 3rd means paying 27 days. This simple timing choice can save several hundred dollars.
Review the Closing Disclosure carefully. Check every line item against your Loan Estimate. Question any unexpected fees or significant increases. Lenders must explain changes that exceed certain thresholds.
Skip optional services. Some fees in the closing costs breakdown are truly optional. Courier fees, for example, may be avoidable if you can pick up documents yourself. Ask which charges you can decline.
Look into first-time buyer programs. Many states and municipalities offer grants or assistance programs. These can cover part or all of closing costs for qualifying buyers.