What is closing costs?
Closing costs are the fees and charges paid when a mortgage transaction is finalized, typically ranging from 2% to 5% of the home purchase price. They include lender fees (origination, underwriting), third-party fees (appraisal, title insurance, survey), prepaid items (property taxes, insurance, per-diem interest), and government recording fees. On a $350,000 home, closing costs typically run $7,000 to $17,500 — a significant cash requirement on top of the down payment.
Updated
Key facts
- Average closing costs in 2025 are approximately 3-4% of the purchase price for buyers and 8-10% for sellers (who pay real estate commissions), according to CoreLogic ClosingCorp data.
- The CFPB's TRID rule (TILA-RESPA Integrated Disclosure) requires lenders to provide a Loan Estimate within 3 business days of application and a Closing Disclosure at least 3 business days before closing.
- The 10% limit applies to the combined total of a set group of third-party and recording fees, not to each fee or to closing costs overall. Some other charges can't increase at all, others may vary, and valid revised estimates are allowed.
- Fannie Mae’s limits on seller-paid closing costs depend on the down payment and property use. VA limits seller concessions to 4% of the home’s reasonable value but doesn't limit seller credits for ordinary loan closing costs.
- Closing costs on a refinance are typically 3-6% of the loan principal, according to Freddie Mac, with actual costs depending on the lender, credit score and location.
What Is Included in Closing Costs?
Closing costs fall into several categories, each itemized on the Closing Disclosure form:
- Lender fees: Origination fee (0.5-1% of loan), application fee, underwriting fee, credit report fee, flood certification fee
- Third-party fees: Appraisal ($300-$600), title search ($200-$400), title insurance (varies by purchase price), survey, attorney/settlement agent fees (required in some states)
- Prepaid items: Prepaid interest (from closing to end of month), first year of homeowner's insurance, initial escrow deposits for taxes and insurance (typically 2-6 months)
- Government fees: Recording fee, transfer tax (varies significantly by state/county), mortgage tax (in some states)
Not all closing costs are negotiable. Governments set taxes, but prepaid insurance costs depend on the provider, and prepaid interest varies with the closing date. But lender fees, title services (in most states), and other third-party fees can often be reduced by shopping multiple providers.
How Does the Loan Estimate Protect Borrowers?
Before the 2015 TRID rule (TILA-RESPA Integrated Disclosure), closing costs were a common source of surprises. The Good Faith Estimate was often inaccurate, and borrowers didn't learn the true costs until the closing table. The Loan Estimate and Closing Disclosure forms changed this:
- Loan Estimate: Must be provided within 3 business days of loan application. Shows estimated closing costs in a standardized format.
- Closing Disclosure: Must be provided at least 3 business days before closing. Shows final closing costs.
- Tolerance limits: Most fees cannot increase at all (0% tolerance) or by more than 10% (limited tolerance) between the Loan Estimate and Closing Disclosure. Certain costs like prepaid interest can change without limit because they depend on the closing date.
Can You Reduce Closing Costs?
Several strategies can lower out-of-pocket closing costs:
- Negotiate seller concessions: In a buyer's market, sellers may agree to pay a portion of closing costs. FHA limits this to 6% of the purchase price; conventional limits vary by down payment amount.
- Request lender credits: Accept a slightly higher interest rate in exchange for the lender covering closing costs. This reduces upfront cash but increases monthly payments.
- Shop for services: The Loan Estimate identifies which services you can shop for (title, survey, pest inspection). Getting quotes from multiple providers can save hundreds.
- Close at end of month: Prepaid interest is charged from the closing date to the end of the month. Closing on the 28th means 2-3 days of prepaid interest; closing on the 3rd means 27-28 days.
- Down payment assistance programs: Many state and local programs cover closing costs for qualifying borrowers — check your state housing finance agency.
Why Do Closing Costs Matter for Financial Distress?
Closing costs drain cash that could otherwise serve as an emergency buffer. A borrower who spends their last $15,000 on down payment and closing costs enters homeownership with no savings cushion — exactly the kind of depleted buffer the American Distress Index tracks. When an unexpected expense hits (medical bill, car repair, job loss), there's nothing left to absorb the shock, and the path from homeowner to delinquent borrower becomes dangerously short.
State-by-state differences
Transfer taxes, recording fees, and attorney requirements vary significantly by state, creating wide differences in closing costs across the country.
| State | Key difference |
|---|---|
| New York | New York's mansion tax is 1% of the sale price on homes that sell for $1 million or more. NYC adds additional transfer taxes. |
| Texas | No state income tax but relatively high title insurance rates (regulated by the state — all companies must charge the same rate). No transfer tax. Attorney not required at closing. |
| Florida | For property transfers, Florida's documentary stamp tax is $0.70 per $100 of the price, rounded up to the next $100, outside Miami-Dade. Miami-Dade charges $0.60 per $100 plus a $0.45 surtax that doesn't apply to single-family homes. A separate nonrecurring intangible tax of 0.2% applies to taxable mortgage debt. Title insurance rates are regulated. Attorney not required but common in South Florida. |
| California | Transfer tax varies by county — some cities add local transfer taxes. No mortgage tax. Attorney not required. Closing costs are moderate relative to high home prices. |
| Delaware | Transfer tax of 4% (split between buyer and seller) — one of the highest flat rates in the nation. First-time buyers may qualify for a reduced rate. |
Questions about closing costs
How much are closing costs on a house?
Closing costs typically range from 2% to 5% of the purchase price. On a $350,000 home, expect to pay $7,000 to $17,500. The exact amount depends on your location (state transfer taxes vary widely), loan type, and whether you're buying points. Your lender must provide or mail your Loan Estimate showing the breakdown within 3 business days of receiving your application.
Can closing costs be rolled into the mortgage?
On a purchase, generally no — you need to pay closing costs at the table or negotiate seller concessions. On a refinance, most closing costs can be rolled into the new loan balance, but this increases the amount you owe and the interest you'll pay over time.
Who pays closing costs — the buyer or seller?
Both pay closing costs, but the composition differs. Buyers pay lender fees, appraisal, title insurance, prepaid items, and recording fees. Sellers pay real estate commissions (typically 5-6% of sale price) and their share of transfer taxes. Sellers can also agree to cover some of the buyer's costs.
What is the difference between a Loan Estimate and Closing Disclosure?
A Loan Estimate is provided within 3 business days of application and shows estimated costs. A Closing Disclosure is provided at least 3 business days before closing and shows final costs. The 10% limit applies to the combined total of a set group of third-party and recording fees, not to each fee. Some other charges can't increase at all, others may vary, and valid revised estimates are allowed.
Are closing costs tax-deductible?
Some closing costs are deductible: mortgage points, prepaid property taxes, and prepaid mortgage interest. Qualifying purchase costs, including owner's title insurance and recording fees, are added to your cost basis in the home. Mortgage financing costs generally aren't, and qualifying points have their own deduction rules.
Related terms
- Origination FeeA lender charge for processing and underwriting a mortgage, typically 0.5-1% of the loan amount. Unlike discount points, it does not reduce your interest rate.
- Title InsuranceInsurance against covered defects in a property’s title that were unknown when the policy began.
- AppraisalA professional opinion of a property's market value based on its features and comparable sales.
- Mortgage PointsUpfront fees paid at closing — discount points lower your interest rate (1 point = 1% of loan amount), while origination points cover lender processing costs.
- Good Faith EstimateThe cost-and-terms form a lender gives you within three business days of a reverse mortgage application; most other mortgages use a Loan Estimate instead.
- EscrowA holding account managed by your mortgage servicer that pays your property taxes and homeowner's insurance. Part of your monthly payment goes into this account.
- Private Mortgage Insurance (PMI)Insurance that protects a lender if a borrower defaults on a conventional mortgage.
- PreapprovalA conditional lending commitment based on verified income, assets, and credit. Application and credit-check requirements vary by lender. The preapproval label alone doesn't mean it is stronger than prequalification.
Sources and method
- CFPB — Closing Disclosure Explainer, at consumerfinance.gov
- CFPB — What are closing costs? at consumerfinance.gov
- Fannie Mae — Selling Guide · Interested Party Contributions, at selling-guide.fanniemae.com
- CFPB — TRID Rule (12 CFR § 1026.19), at consumerfinance.gov
- U.S. Department of Veterans Affairs, at va.gov
- Freddie Mac, at myhome.freddiemac.com
- Consumer Financial Protection Bureau, at consumerfinance.gov
- New York Department of Taxation and Finance, at tax.ny.gov
- Florida Department of Revenue, at floridarevenue.com
- Consumer Financial Protection Bureau, at consumerfinance.gov
- Internal Revenue Service, at irs.gov
We write with assistance from AI tools. Figures come from the data and sources named on this page.