Closing costs are the fees and taxes you pay to complete a home purchase and take out a mortgage, on top of your down payment. In the US they typically come to about 2% to 5% of the price. On a $400,000 home that's roughly US$8,000 to US$18,000, depending mostly on your state, your loan and what you negotiate with the seller.
Key points
- Closing costs for buyers typically run at 2% to 5% of the price. State and local transfer taxes are the biggest reason the figure varies.
- Most items are lender fees, title insurance, escrow or settlement fees, recording fees and taxes, plus prepaid insurance, property tax and interest.
- Your lender must send a Loan Estimate within three business days of your application and a Closing Disclosure at least three business days before closing.
- Some costs can't go up between the two documents. Others can rise by up to 10% in total, and some can change by any amount.
- You can lower closing costs by shopping for services, comparing lenders and negotiating with the seller.
What are closing costs?
The Consumer Financial Protection Bureau (CFPB) describes closing costs as the fees and charges paid to complete a home purchase or a mortgage. Buyers usually pay most of them. Sellers pay some too, depending on the contract and on state law. Even when the seller or lender "pays", you usually bear the cost another way. A seller credit often comes with a higher price, and a lender credit usually means a higher interest rate.
Every cost for your price and situation in the US, including taxes for buyers from abroad.
How much are closing costs? Worked examples
Our US calculator uses three typical levels, because costs depend so much on where you buy. It doesn't hold every state's or county's transfer-tax table, so treat these as estimates for planning, not quotes.
| Price | Lower-cost state (e.g. TX, MO) | Typical (most states) | Higher-cost state (e.g. NY, DE, PA) |
|---|---|---|---|
| $250,000 | US$5,000 | US$7,500 | US$11,250 |
| $400,000 | US$8,000 | US$12,000 | US$18,000 |
| $600,000 | US$12,000 | US$18,000 | US$27,000 |
The levels are 2%, 3% and 4.5% of the price. Some fees, such as an appraisal or a credit report, are flat amounts, so on a cheaper home they make up a bigger share of the total.
Example 1. You buy a $400,000 home in a typical state with a mortgage. Budget about US$12,000 for closing costs, on top of your down payment.
Example 2. You buy the same home in a state with high transfer taxes, where the buyer pays some or all of the tax by custom. Budget closer to US$18,000.
What's included in closing costs for a buyer
Lender fees
These include the origination or underwriting fee, any discount points you buy to lower your rate, and a credit report fee. The lender also usually requires an appraisal, which checks the home is worth what you're paying. Paying cash? You skip most lender fees.
Title search and title insurance
A title company checks that the seller can sell and that there are no unpaid claims on the home. Lenders generally require a lender's title policy, which protects the loan. An owner's title policy, which protects you against earlier claims such as unpaid taxes or contractor bills, is optional but often worth having. Buying both from the same company usually costs less.
Escrow and settlement fees
An escrow company, title company or attorney runs the closing, holds the money and pays everyone. Which one handles closing depends on the state.
Recording fees and transfer taxes
Your county charges a fee to record the deed and the mortgage. Many states, counties and cities also charge a transfer tax when a home changes hands. Some places charge none, and others charge a few per cent. Some add extra tax on higher-priced homes. Who pays is set by state law or local custom. In some places the seller usually pays, in others the buyer, and in others it's split, but you can often negotiate it in the contract.
Prepaid items and escrow deposits
At closing you usually pay interest up to your first mortgage payment, the first 6 to 12 months of homeowners insurance, and an opening deposit into an escrow account for future property tax and insurance bills. These aren't fees as such, but they are part of your cash to close. Depending on your loan, you may also pay mortgage insurance or other loan-specific charges.
Closing costs by state: transfer taxes
The biggest difference between states is the tax on the transfer itself. Some states have none, some charge the seller by custom, and a few charge the buyer, or add a separate tax on the mortgage. The table shows only the taxes a buyer usually pays on a $400,000 home, with and without a mortgage (80% loan). Title insurance, escrow and lender fees come on top. Who pays is set by local custom and can be negotiated, and counties and cities can add their own tax. Pick your state for the full breakdown.
| State | Transfer tax (who usually pays) | Buyer's taxes, cash | Buyer's taxes with a mortgage |
|---|---|---|---|
| Alabama | Buyer | US$400 | US$850 |
| Alaska | None | US$0 | US$0 |
| Arizona | None | US$0 | US$0 |
| Arkansas | Split | US$660 | US$660 |
| California | Seller | US$0 | US$0 |
| Colorado | Buyer | US$40 | US$40 |
| Connecticut | Seller | US$0 | US$0 |
| Delaware | Split | US$8,000 | US$8,000 |
| District of Columbia | Seller | US$5,800 | US$5,800 |
| Florida | Seller | US$0 | US$1,650 |
| Georgia | Seller | US$0 | US$900 |
| Hawaii | Seller | US$0 | US$0 |
| Idaho | None | US$0 | US$0 |
| Illinois | Seller | US$0 | US$0 |
| Indiana | None | US$0 | US$0 |
| Iowa | Seller | US$0 | US$0 |
| Kansas | None | US$0 | US$0 |
| Kentucky | Seller | US$0 | US$0 |
| Louisiana | None | US$0 | US$0 |
| Maine | Split | US$880 | US$880 |
| Maryland | Split | US$4,000 | US$4,000 |
| Massachusetts | Seller | US$0 | US$0 |
| Michigan | Seller | US$0 | US$0 |
| Minnesota | Seller | US$0 | US$720 |
| Mississippi | None | US$0 | US$0 |
| Missouri | None | US$0 | US$0 |
| Montana | None | US$0 | US$0 |
| Nebraska | Seller | US$0 | US$0 |
| Nevada | Split | US$1,020 | US$1,020 |
| New Hampshire | Split | US$3,000 | US$3,000 |
| New Jersey | Seller | US$0 | US$0 |
| New Mexico | None | US$0 | US$0 |
| New York | Seller | US$0 | US$2,400 |
| North Carolina | Seller | US$0 | US$0 |
| North Dakota | None | US$0 | US$0 |
| Ohio | Seller | US$0 | US$0 |
| Oklahoma | Seller | US$0 | US$300 |
| Oregon | None | US$0 | US$0 |
| Pennsylvania | Split | US$4,000 | US$4,000 |
| Rhode Island | Seller | US$0 | US$0 |
| South Carolina | Seller | US$0 | US$0 |
| South Dakota | Seller | US$0 | US$0 |
| Tennessee | Buyer | US$1,480 | US$1,825 |
| Texas | None | US$0 | US$0 |
| Utah | None | US$0 | US$0 |
| Vermont | Buyer | US$3,940 | US$3,940 |
| Virginia | Seller | US$1,333 | US$2,333 |
| Washington | Seller | US$0 | US$0 |
| West Virginia | Seller | US$0 | US$0 |
| Wisconsin | Seller | US$0 | US$0 |
| Wyoming | None | US$0 | US$0 |
The Loan Estimate and the Closing Disclosure
The CFPB's rules give you two standard forms, so you can compare lenders and check nothing changes without a reason.
- Loan Estimate. Your lender must give you this within three business days of receiving your application. It shows the loan terms, your estimated monthly payment, estimated closing costs and estimated cash to close. Get Loan Estimates from several lenders and compare the totals.
- Closing Disclosure. Your lender must give you this at least three business days before closing. It shows the final terms and costs.
When you compare them, some costs can't increase at all unless your circumstances change: fees paid to the lender or broker, fees for required services you weren't allowed to shop for, and transfer taxes. Recording fees and services from the lender's own list can't rise by more than 10% in total. Prepaid interest, insurance, escrow deposits and services you shopped for yourself can change by any amount. If costs rise beyond these limits without a change in circumstances, you're entitled to a refund of the excess.
How to reduce closing costs
- Compare Loan Estimates. Ask two or three lenders for one on the same day and compare the total closing costs, not just the rate.
- Shop for services. Your Loan Estimate lists services you can shop for, such as title or settlement services in many states. Check with your lender before using a provider who isn't on its list.
- Ask the seller for a credit. This works best in a slower market. Remember it can push the price up.
- Weigh lender credits carefully. A lender credit cuts your closing costs but usually raises your rate, so it costs more if you keep the loan for years.
- Look for local help. Some states and cities run down-payment or closing-cost assistance programmes for first-time or lower-income buyers.
- Check your closing date. Closing near the end of the month reduces the prepaid interest you pay at closing, although your first full payment is the same either way.
Common mistakes
- Budgeting only for the down payment. Lenders need to see you have the cash to close as well.
- Assuming the seller pays the transfer tax. That depends on where you buy. Check your contract.
- Ignoring the Closing Disclosure. Read it as soon as it arrives and query anything that's new or higher than on the Loan Estimate.
- Wiring money on an emailed instruction without checking it. Confirm wiring details by phone with your closing agent, on a number you already know.
Buying from abroad
If you're not a US resident, closing costs work the same way, but lenders usually ask for a bigger down payment and more paperwork. See our guide to buying a home in the US as a foreigner.
Work out your own figures
Use our US buying costs calculator to estimate closing costs at a lower-cost, typical or higher-cost level for your price. Then check the figure against your lender's Loan Estimate and your state's transfer-tax rules.