Closing Costs
Closing costs are fees and expenses paid at the real estate closing beyond the property price, typically 2-5% of the loan amount, including lender fees, title insurance, escrow, and prepaid items.
Exam Tip
Closing costs = 2-5% of LOAN amount for buyers. Know which costs are negotiable and who typically pays what.
What are Closing Costs?
Closing costs are the fees and expenses associated with finalizing a real estate transaction, paid on top of the property's purchase price. They cover services from lenders, title companies, attorneys, and government agencies.
Typical Closing Costs
| Category | Common Fees |
|---|---|
| Lender Fees | Origination, underwriting, credit report |
| Title Fees | Title search, title insurance, settlement |
| Government Fees | Recording fees, transfer taxes |
| Prepaid Items | Property taxes, homeowners insurance |
| Escrow Deposits | Initial escrow account funding |
| Third Party | Appraisal, survey, inspection |
Average Closing Costs
| Scenario | Typical Range |
|---|---|
| Buyer | 2-5% of loan amount |
| Seller | 6-10% of sale price (mostly commission) |
Buyer vs. Seller Costs
| Buyer Typically Pays | Seller Typically Pays |
|---|---|
| Loan origination fees | Real estate commission |
| Appraisal | Transfer taxes (varies) |
| Credit report | Title insurance (varies) |
| Title insurance (lender's) | Prorated property taxes |
| Home inspection | HOA transfer fees |
| Prepaid insurance | Attorney fees (varies) |
Closing Cost Breakdown Example
For a $300,000 home with $240,000 loan:
| Fee | Approximate Cost |
|---|---|
| Origination (1%) | $2,400 |
| Appraisal | $500 |
| Title Insurance | $1,500 |
| Recording Fees | $150 |
| Prepaid Taxes (3 mo) | $1,500 |
| Prepaid Insurance | $1,200 |
| Escrow Deposit | $600 |
| Total | ~$7,850 |
Reducing Closing Costs
| Strategy | How It Works |
|---|---|
| Negotiate | Ask seller for credits |
| Shop Around | Compare lender fees |
| No-Closing-Cost Loan | Higher rate, no upfront fees |
| Lender Credits | Trade higher rate for credits |
Exam Alert
Know the difference between prepaid items (taxes, insurance) and actual fees. Closing costs are disclosed on the Loan Estimate and Closing Disclosure forms (TRID/TILA-RESPA).
Study This Term In
Related Terms
Escrow
Real EstateEscrow is a neutral third-party arrangement where money or documents are held until all conditions of a real estate transaction are met.
Title Insurance
Real EstateTitle insurance is a policy that protects property buyers and lenders against losses from defects in title, such as liens, encumbrances, or ownership disputes that existed before purchase.
Closing (Real Estate)
Real EstateClosing is the final step in a real estate transaction where ownership transfers from seller to buyer, documents are signed, funds are exchanged, and the deed is recorded.
Mortgage
Real EstateA mortgage is a loan used to purchase real estate, where the property serves as collateral, typically repaid over 15-30 years with interest.