Closing Costs: How Much You’ll Pay for Mortgage Fees

Most prospective homebuyers are laser-focused on saving for a down payment, but forget they’ll need to pay 2% to 6% of their loan amount toward closing costs. They also may not realize that someone else can pay for them, including the seller or their lender.

We’ll take a detailed look at everything you need to know about negotiating, reducing and paying for the costs involved in buying a home.

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What are closing costs?

In real estate, closing costs are fees paid to all of the parties involved in helping you buy and finance a home. While fees associated with the mortgage process make up most of the costs, you’ll also see fees for things like home inspections and homeowners association (HOA) transfers. You may also pay specific fees related to the mortgage program you choose.

The majority of the fees are paid at the closing table before you become an official homeowner.

Closing cost breakdown

We’ve put together an A to Z look at what you can expect to pay for typical mortgage closing costs.

Application fee

  How much it costs: Application fees are usually no more than $500.

Lenders may charge a fee to set up your loan application, although the fee is often applied to the cost of your home appraisal or the pulling of your credit report.

Appraisal

  How much it costs: Appraisal fees usually cost between $300 to $500.

A home appraisal is a professionally prepared report used to estimate your home’s value.

Attorney or escrow fees

  How much it costs: Typically, the cost is either an hourly rate for an attorney or a percentage of your home’s purchase price.

You’ll pay an attorney or escrow officer to prepare final documents for signing at your closing. The lender must disclose these fees accurately when your contract is accepted. They’ll have to pay the difference if the cost is more than 10% higher than the initial quote.

Closing fee

  How much it costs: Varies depending on the lender.

Your lender may charge a separate fee to generate final loan documents.

Credit report

  How much it costs: Expect to pay between $50 and $80 for a three-bureau credit report.

Lenders pull a credit report to check your credit scores and review your history of credit use.

Discount points

  How much it costs: One discount point typically equals 1% of your loan amount and can decrease your rate by up to 0.25%.

Also called mortgage points, discount points are optional, allowing you to “buy” a lower interest rate.

FHA upfront mortgage insurance premium

  How much it costs: The cost is 1.75% of your loan amount if you’re buying a home.

This is one of two types of FHA mortgage insurance premiums due on a loan backed by the Federal Housing Administration (FHA), and is usually rolled into your loan balance.

Flood monitoring and flood determination fee

  How much it costs: Between $15 and $25.

National flood maps change frequently. Lenders charge this fee to confirm whether your home is in a flood plain and requires flood insurance. 

Government recording and transfer fees

  How much it costs: The fees vary based on where you live, but typically range from $25 to $250.

These fees are charged by a local recorder’s office to create a public record home title transfer into your name.

HOA transfer fees

  How much it costs: Anywhere from hundreds to thousands of dollars.

Homeowners associations charge fees when you take ownership of a home in a neighborhood they govern. The total transfer costs should be detailed on your final closing disclosure, if your home is governed by an HOA.

Home inspection

  How much it costs: $300 to $1,000, depending on where you live and the home’s size.

Lenders don’t require a home inspection, but you should always get one for a top-to-bottom look at all the working (and nonworking) parts of the home you’re buying.

Home warranty

  How much it costs: From $220 to just over $1,800.

If you’re buying an older home, consider purchasing a home warranty. Though your lender doesn’t require you buy one, it may be worth it to help cover repair or replacement costs for appliances that break in your new home.

Initial escrow payment

  How much it costs: The initial escrow payment for a new escrow account is typically:

• Two to nine months worth of your property taxes
• Two to three months worth of your homeowners insurance

The lender adds a “cash cushion” to your initial escrow payment to set up an escrow account for payment of your property taxes and homeowners insurance. They also divide the bills by 12 and add it to your monthly mortgage payment so you’re contributing to the balance during the life of your loan.

Origination fee

  How much it costs: It may be a flat fee or a percentage of your loan amount.

This fee is charged to cover the cost of making (“originating”) a loan.

Pest inspection

  How much it costs: According to HomeAdvisor, you’ll pay between $50 and $200 depending on the type of report needed.

Depending on where you live, a termite inspection or another type of pest inspection report might be required.

Prepaid cost when buying a home

  How much it costs: Your loan estimate will include a detailed breakdown of your prepaid costs, though lenders typically collect:

• One to 30 days’ worth of interest, depending on what day of the month you close
• Your current property tax bill, if they’re due before your first payment date
• Your first year’s homeowners insurance premium

You may need to prepay interest on your new loan and a portion of property taxes, depending on when you close. Closing at the end of the month reduces the amount of prepaid interest that’s due. The amount due for property taxes will depend on your local county’s billing practices. You’ll also prepay your first year’s homeowners insurance premium.

Mythbuster

Closing at the beginning of the month doesn’t delay your first payment. A well-meaning friend may suggest closing at the beginning of the month so you “skip your first mortgage payment.” Interest is paid in “arrears” — which means the interest clock has to tick for 30 days before the lender can charge you for a full month’s payment. Don’t fall for the trick – you’ll pay extra interest at closing to make up for the delayed first mortgage payment.

Title insurance

  How much it costs: Title insurance generally costs between 0.5% to 1% of the purchase price for the lender and owner’s policy.

You’ll buy a lender’s title insurance policy to protect your lender against legal costs from claims related to a prior owner. The seller typically also pays for an owner’s title policy on your behalf to give you additional legal protection; the lender’s title policy only protects your mortgage company if there’s a title issue.

Title search fee

  How much it costs: Varies

A title examiner checks public records on your home. They then produce a preliminary title report that details prior property owners, liens on the home and the legal description of the home. You can’t get a mortgage unless the report is “clear”; the seller must resolve title issues and the title must be insurable.

Tax monitoring

  How much it costs: Varies

This fee allows the lender to track your annual property tax bills.

VA funding fee

  How much it costs: You’ll pay a funding fee from 1.40% to 3.60% of your loan amount to buy a home with a VA loan.

Military borrowers may pay a VA funding fee on a mortgage backed by the U.S. Department of Veterans Affairs (VA). The amount varies based on your down payment and whether you’ve used your home loan benefits before. The cost is typically financed into the loan amount.

USDA guarantee fee

  How much it costs: You’ll pay 1% of your loan amount

Loans backed by the U.S. Department of Agriculture (USDA) require an upfront guarantee fee, which is added to the loan amount.

Don’t forget moving costs.

Set aside extra money for packing supplies, professional movers, truck rental and gas costs. The average cost of a local move is about $1,250, while a long-distance move (more than 1,000 miles) costs roughly $4,890.

How much are average closing costs?

You’ll typically pay between 2% and 6% of your loan amount toward closing costs. The cost varies based on how much you’re borrowing and whether you’re purchasing or refinancing a home. Refinance closing costs tend to be lower than purchase mortgage costs.

According to the National Association of Realtors, median home prices rose to $402,600 in the second quarter of 2023.  With a 20% down payment, these closing costs would range between $6,442 (2%) and $19,325 (6%).

Who pays for closing costs?

Although closing costs are charged to you, they can be paid by others involved in the purchase, or with a gift from a relative.

Closing costs that can be paid by the seller

Conventional, FHA and VA loan programs allow the seller to pay a percentage of your home’s sales price toward closing costs. The table below shows the maximum percentage allowed for each program:

Closing costs that can be paid by your lender

If you’re short on closing cost cash, ask your lender about a no-closing-cost mortgage. In exchange for a higher rate, the lender pays your closing costs with a lender credit, which allows you to keep extra cash on hand. The drawback: You’ll pay more interest over the life of the loan, which can add up over a 30-year term.

Closing costs paid with a gift

Lending guidelines allow you to get a financial gift from a relative or friend to cover closing costs. You’ll need a gift letter and paperwork showing the money’s path from the donor to you. There’s one exception: If you’re buying an investment property, all the closing cost money must come from your own funds.

Closing costs paid with down payment assistance programs

Your local government or nonprofit housing agency may offer down payment assistance (DPA) programs to help with your down payment and closing costs. Income limits usually apply, so check with your loan officer for eligibility requirements.

How to pay closing costs

To cover all these costs, you’ll either need to provide a cashier’s check at closing or wire funds to the escrow account. Some of your closing costs, such as appraisal fees and home inspection fees, are paid upfront when the mortgage process begins.

One important note: Real estate wire fraud schemes are a multibillion-dollar problem — perpetrated by savvy hackers impersonating agents, loan officers and escrow officers — that trick borrowers into wiring closing funds to the wrong account.

Always confirm the wire instructions on the phone with your loan officer and escrow officer. Never respond to an email notifying you of “new wiring instructions.”

How to reduce mortgage closing costs

• Shop and haggle. A recent LendingTree study found nearly half of the mortgage seekers who shopped around saved money.
• Make a bigger down payment. A larger down payment translates to a smaller mortgage, which reduces origination and discount fees that are directly tied to a percentage of your loan amount.