Whether you are just beginning your home search or waiting for final approval from the lender, you need to know your closing costs. You don’t want to show up on closing day to find out that you owe thousands of dollars that you’re not prepared for.

To try and clear up the mystery and stress surrounding closing costs, we will take a detailed look at what you can expect to pay on closing day.

What Are Closing Costs?

Closing costs are any expenses you must pay when completing your home purchase. This can include taxes, fees, appraisals, and more.

The specific closing costs you’ll need to pay will depend on where you live and how you purchase your home.

Before you set out to estimate your closing costs, be sure you understand what closing costs are.

Buyer’s Closing Costs

The buyer will usually pay the majority of the closing costs. Here are some common fees homebuyers are usually charged.

  • Points – Each discount point will cost 1% of the loan value. A point on a $300,000 loan would cost $3000. Purchasing points is optional.
  • Appraisal – Appraisals start at around $300 and can go over $600 depending on home size, time of year, and other factors.
  • Attorney Fees – Hiring a real estate attorney will cost a flat fee that can exceed $1,000.
  • Closing Fee – if your escrow company or title company presides over the closing, they will charge a closing/escrow fee of up to a few thousand.
  • Loan Origination Fee – This fee can set you back up to 1% of the loan value.
  • Inspection Fees – Any loan or lender-required inspections can be added to your home inspection for a small fee.
  • Mortgage Insurance – Private mortgage insurance can run up to 2% of your loan value. Not all mortgages require this insurance.
  • Survey Fee – A land survey averages around $500, according to HomeAdvisor
  • Underwriting Fee – The cost for this is roughly $600, depending on the lender.
  • Escrow – if you will make mortgage payments through an escrow account, you’ll need to pre-fund it with a few months’ payments.
  • Taxes – some lenders may request up to a year’s worth of property taxes upfront. Be sure you know the annual property tax on a property before making a purchase!
  • Credit Report Fees – each individual report pulled can cost up to $30.
  • Government-Backed Loan Fees – VA loans charge a funding fee of up to 2.3% of the financed amount(for 1st mortgages), while FHA loans charge 1.75% of the loan amount for mortgage insurance.

Some of these fees may be waived or come with a different name. And some of them might not be required for your loan and/or state.

Seller’s Closing Costs

While the buyer is responsible for most of the closing costs, there are a few that the seller usually covers.

  • Title Insurance – a policy costs, on average, around $1000, according to realtor.com.
  • Lender Title Insurance – This insurance is usually charged at a flat fee, dependent on the loan amount. I.E., a policy for $300,000 could cost $1000.
  • Real Estate Commission – According to Redfin, the commissions for a buyer’s agent and seller’s agent usually total 5 – 6 percent of the home’s value.
  • Title Search & Transfer Fee – also called a recording fee or title services, costs range from a few hundred to several thousand.
  • Home Warranty – These policies can cost up to $600/year and will only be included in closing costs if the seller purchases the policy.
  • Seller’s Attorney – the seller can choose to hire their own attorney for closing, which will usually be charged at an hourly rate, i.e., $300/hr.

Sellers may incur other costs such as prepaying HOA fees, early repayment penalties (on their mortgage), seller concessions, etc.

How Do You Pay Closing Costs?

All of the seller’s closing costs are taken directly out of the funds they receive for the sale of the house. If they make any concessions, i.e., paying the buyers closing costs, this is also taken from the money they receive for the sale.

In contrast, as a buyer, you can pay your closing costs upfront or roll some of them into the loan value. Some closing costs, i.e., discount points, cannot be rolled into the loan value.

How Do You Estimate Your Closing Costs?

When determining your closing costs, you will need to factor in your purchase price, loan type, tax rate, optional add-ons, and more.

Luckily, as part of the home-buying process, your lender will estimate your closing costs in a closing disclosure. They will provide this document at various stages, including initial approval, after making significant changes (i.e., adding discount points), and as part of final approval.

👉 Your closing cost disclosure should look something like this example from the CFPB (consumer finance protection bureau).

How Much Should You Set Aside for Closing Costs?

Many financial experts will recommend having around 2% – 4% of the purchase price set aside for closing costs. But the exact rate ranges greatly from state to state.

According to a 2022 analysis by CoreLogic, the average closing costs in 2021 for each state ranged from $2,200 to nearly $30,000. Below is a state-by-state breakdown.

State Average Home Price Average Closing Costs
(with taxes)
% of Sales Price
Alabama $ 216,931 $ 2,986.00 1.38%
Alaska $ 348,526 $ 3,581.00 1.03%
Arizona $ 409,930 $ 4,701.00 1.15%
Arkansas $ 204,451 $ 3,115.00 1.52%
California $ 793,424 $ 7,953.00 1.00%
Colorado $ 536,795 $ 3,881.00 0.72%
Connecticut $ 419,149 $ 8,821.00 2.10%
Delaware $ 329,931 $ 17,859.00 5.41%
District of Columbia $ 769,351 $ 29,888.00 3.88%
Florida $ 375,368 $ 8,554.00 2.28%
Georgia $ 294,171 $ 3,762.00 1.28%
Hawaii $ 789,760 $ 7,463.00 0.94%
Idaho $ 424,023 $ 4,082.00 0.96%
Illinois $ 283,313 $ 5,929.00 2.09%
Indiana $ 233,584 $ 2,200.00 0.94%
Iowa $ 201,306 $ 3,146.00 1.56%
Kansas $ 284,057 $ 2,793.00 0.98%
Kentucky $ 202,108 $ 2,802.00 1.39%
Louisiana $ 223,253 $ 3,711.00 1.66%
Maine $ 330,505 $ 4,420.00 1.34%
Maryland $ 400,544 $ 14,721.00 3.68%
Massachusetts $ 604,986 $ 7,964.00 1.32%
Michigan $ 209,783 $ 5,714.00 2,72%
Minnesota $ 296,790 $ 4,011.00 1.35%
Mississippi $ 268,416 $ 2,756.00 1.03%
Missouri $ 245,985 $ 2,061.00 0.84%
Montana $ 406,544 $ 3,337.00 0.82%
Nebraska $ 227,363 $ 2,781.00 1.22%
Nevada $ 426,220 $ 6,383.00 1.50%
New Hampshire $ 351,365 $ 8,183.00 2.33%
New Jersey $ 461,488 $ 7,915.00 1.72%
New Mexico $ 316,010 $ 3,513.00 1.11%
New York $ 538,102 $ 16,849.00 3.13%
North Carolina $ 306,300 $ 3,406.00 1.11%
North Dakota $ 243,312 $ 2,501.00 1.03%
Ohio $ 207,480 $ 4,223.00 2.04%
Oklahoma $ 188,899 $ 2,893.00 1.53%
Oregon $ 464,666 $ 4,327.00 0.93%
Pennsylvania $ 248,561 $ 10,634.00 4.28%
Rhode Island $ 412,037 $ 5,568.00 1.35%
South Carolina $ 298,817 $ 3,447.00 1.15%
South Dakota $ 232,564 $ 3,105.00 1.34%
Tennessee $ 280,571 $ 3,911.00 1.39%
Texas $ 302,672 $ 4,548.00 1.50%
Utah $ 488,644 $ 4,837.00 0.99%
Vermont $ 306,703 $ 7,906.00 2.58%
Virginia $ 379,083 $ 6,346.00 1.67%
Washington $ 579,324 $ 13,927.00 2.40%
West Virginia $ 191,011 $ 3,406.00 1.78%
Wisconsin $ 236,119 $ 3,459.00 1.46%
Wyoming $ 352,788 $ 2,589.00 0.73%

The above numbers only include appraisals, title fees, and taxes as closing costs.

These state-by-state closing cost numbers are averages and might not be a true reflection of your actual closing costs.

To get a more detailed estimate of your closing costs, talk to your lender or try using a closing cost calculator like this one from First American Title.

How to Reduce Closing Costs

Ending up with thousands of dollars in extra costs when purchasing a home can be frustrating. There is good news; you may be able to lower or eliminate some of your closing costs.

While some costs can’t be changed, like your county’s tax rate, others can be managed by making intelligent choices.

Negotiate With Your Lender

Not all lenders charge the same fees. This is why it is important to shop around for a mortgage. If you have competing offers, some lenders will negotiate or waive fees like loan origination, credit report fees, and underwriting fees.

Plus, shopping around your loan will help you find the lowest APR. Finding the best rate will also save you from having to purchase discount points or refinance later.

Choose the Right Loan

When choosing a mortgage, you’ll want to weigh the pros and cons of different loan types.

For instance, a conventional loan usually has higher credit requirements and may come with expensive private mortgage insurance (PMI).

On the other hand, government-backed mortgages may be easier to get with poor credit, but they come with increased fees. This can include mandatory pest inspections, updated surveys, funding fees, mortgage insurance costs, etc.

As a comparison, the average closing costs associated with an FHA loan are $7,402, while the average closing costs when using a conventional loan are $3,745.

Downpayment amounts can affect VA loans that charge a funding fee in place of mortgage insurance. With a downpayment of 4%, your upfront funding fee would be 2.3% versus a down payment of 6%, resulting in a funding fee of 1.65%.

Negotiate More From the Seller

If the house has some major issues or has been on the market for a while, you can use this opportunity to negotiate with the seller to cover some of your closing costs. This would be considered a seller concession.

Just be aware that each loan type has a limit on how much money the seller can contribute toward your closing costs.

  • Conventional – max of 3% to 9% of the loan value, depending on your downpayment amount
  • FHA – up to 6 % of the loan value
  • VA – up to 4% on escrow and funding fees, unlimited on other closing costs

Even if you can’t negotiate concessions from the seller, you can still negotiate other benefits like a home warranty, free/cheap appliances, or passing along documentation (i.e., a land survey).


Closing costs can be complicated, but they should never be unexpected. Working with your lender, you should have an accurate picture of your closing costs well before closing day.

If you don’t like the dollar total, try negotiating. You can shop your loan around or encourage the seller to chip in towards your closing costs.

Regardless of how you finance your home, having a sufficient amount set aside for closing costs will help your home purchase go smoother.

The post How to Estimate Your Closing Costs: How Much Will You Pay? appeared first on FinMasters.


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