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Many costs come with buying a house, but some of the most substantial to prepare for are the mortgage closing costs. These are due on closing day. Here, we’ll cover what’s included in closing costs and how much they cost.
The closing costs for a mortgage include all of the expenses related to applying for the loan and finalizing a real estate sale. Some of the costs are related to the property, while others are related to the mortgage lender’s services and the paperwork involved in the transaction.
With home sales, both buyers and sellers typically pay closing costs. The closing costs paid by sellers are typically deducted directly from the sale proceeds. Buyers usually pay their portion out of pocket.
Mortgage closing costs typically run about 2 to 5 percent of your total loan amount.
The total tab for your closing costs depends on three key factors:
For 2021, the average closing costs for buying a single-family home were $6,905, according to the latest study from real estate data firm ClosingCorp. The average closing costs for a refinance came in at $2,375.
However, those costs vary widely across the country partly due to tax differences. For example, homebuyers in Washington, D.C. paid the highest average closing costs, at $29,888. Delaware and New York came in second and third, respectively, with average closing costs of more than $16,000. The cheapest closing costs were found in the middle of the country: Missouri ($2,061), Indiana ($2,200) and North Dakota ($2,501).
Before you close on the home, you’ll receive a mortgage loan estimate, which is a document outlining your mortgage terms and expenses. At least three business days before the closing, you’ll receive a closing disclosure. This is a similar document that lists the final closing costs.
Whether paid by the homebuyer or seller, here’s a list of what is included in closing costs:
The buyer pays most closing costs, but the seller pays some, such as the real estate agent’s commissions. As the buyer, you might try to negotiate some of your costs into the current homeowner’s corner, but that’s only feasible if the seller doesn’t have other offers on the table.
Sometimes, sellers will agree to pay a portion of your costs to help with the sale. This is known as seller concessions. It may also involve the seller lowering the purchase price to account for things like repairs.
However, there are limits on the amount of seller concessions you can receive, depending on your loan. Conventional loans are only eligible for up to 9 percent of the purchase price or appraised value, whichever is lower. FHA loans and USDA loans allow for up to 6 percent, while VA loans have a maximum of 4 percent total. Jumbo loans vary based on the lender.
While you can’t avoid paying all mortgage closing costs, there are some that can be negotiated, potentially saving you money. Here are a few tips:
Before you start looking at homes, get preapproved for a mortgage so you understand how much home you can afford. That’ll give you a rough sense of how much the closing costs might be.
Sometimes. Many lenders offer no-closing-cost mortgages, meaning you won’t pay the closing costs upfront on closing day. Instead, they’re rolled into the overall loan balance — increasing the principal — or the lender charges a higher interest rate on the loan.
The majority of closing costs are paid when you sign your final loan and purchase documents at closing. You’ll pay some of the fees, such as for an appraisal and credit check, ahead of time.
It depends on the loan type, your lender and how fast you send over the documentation they need to process and underwrite your application. As of March 2024, it took the average borrower 44 days to close a mortgage, according to ICE Mortgage Technology. Conventional loans tend to have faster closing times than government-backed products, like FHA and VA loans. New purchase loans tend to take slightly less time than refinances.
Lara Vukelich is a freelance writer who has written for Bankrate, Huffington Post and Quiet Revolution to Expedia, Travelocity, and MyMove. She is based in San Diego, California.
