Count the Closing Costs: A Line-By-Line Guide to Mortgage Loan Closing Costs

During the excitement of searching for a home and getting preapproved for a loan, closing costs may get overlooked. Many buyers tend to budget for their monthly mortgage payment and their down payment, but closing costs need to be considered in the equation as well.

Can you still afford the home of your dreams when you account for closing costs? We’re going to find out.

What are closing costs?

Closing costs are a collection of fees related to buying a house, which are due on the official date of purchase (also known as closing). Some of these costs, such as property taxes and insurance, are related to homeownership in general. Others, such as origination fees and interest, are directly related to obtaining a mortgage.

Richie Helali, a licensed, senior mortgage advisor at HomeLight, says that closing costs are most often paid in cash through wire transfer or certified check, along with the down payment for your loan (which is not part of your closing costs, but is due at the same time). If the total amount of your closing costs plus your down payment is financially overwhelming, sometimes lenders will allow you to add the closing costs into the total amount of your loan, thus reducing the amount of cash needed at closing.

How much are typical closing costs?

Closing costs are typically between 2% and 5% of the loan amount but can vary significantly based on location. ClosingCorp, a national closing data provider, reports that on average, Americans pay $5,749 in closing costs.

By way of example, consider the possible range in closing costs for these home prices.

The HomeLight closing cost calculator can provide a more accurate picture of how this relates to the homes in your price range and location.

Closing costs: a breakdown

Closing costs can be broken up into three main categories: loan costs, title costs, and other costs.

Below, we’ll look at what to expect –– and where you might be able to save money –– for each line item. After you understand this breakdown, consult our closing cost calculator for a more personalized and pinpointed estimate.

Mortgage loan costs

Mortgage loan costs, broadly referred to as “loan origination fees”, are fees incurred in the creation of the loan and charged by your lender. Generally, mortgage fees won’t exceed 3% of the total loan amount.

Lenders can choose to not charge lender fees, but there are a few costs — such as the appraisal — that you’ll likely have to pay no matter what. Here’s a breakdown.

Origination fees

Different lenders will call these “origination fees” by different names. You may see a “processing fee”, an “underwriting fee”, or a “lender fee” to name a few. These fees are sometimes charged standalone, sometimes in combination with other such fees. Regardless of what they are called, these fees generally cover the administration of the loan, from processing the application to verifying background information to producing the documentation.

The amount of these fees can vary significantly from lender to lender, some charge a flat fee, some a percentage of the loan amount, but what they are called and the actual amount can vary greatly. On a Closing Disclosure, you’ll see all origination fees, regardless of what they are called, listed on page 2, section A, under “Origination Charges.”

Is it possible to save money on this closing cost line item? 
Yes. When shopping around for a mortgage loan, borrowers should compare origination fees. The variance between different lenders’ origination fees can save thousands of dollars at closing.

Application fee

An application fee is a one-time fee intended to cover the costs of processing the loan application. It is also considered an “origination fee” and will be included in the total origination fees listed on your Loan Estimate and Closing Disclosure.

An application fee is usually nonrefundable, and the amount will usually vary between $0 and $500, depending on the lender. Online lenders may have the lowest application fees, thanks to labor-saving automation within the application form. Sometimes the application fee is charged upfront (when you apply), and other times, it’s part of the closing costs.

Is it possible to save money on this closing cost line item? 
Yes. Borrowers should compare different lenders’ application fees prior to applying for a loan. Not all lenders charge an application fee and the amount charged can vary.

Mortgage broker fee

Mortgage brokers are loan originators that work with a network of lenders to connect borrowers with the loan products that are best-suited to their situation. Typically mortgage brokers receive between 1% and 2% of the loan amount in fees.

Sometimes the lender will cover this cost (or, more accurately, they will probably build it into your rate), and in some instances the broker may be paid directly by you. Buyers should always ask how the broker will be getting paid. Will the lender or the buyer cover the broker’s fee? And if the lender covers the fee, how will that fee be covered?

A mortgage broker fee is considered an “origination fee” as well, and will be included on your Loan Estimate and Closing Disclosure in that “Origination Charges” category.  The total origination charges paid by you, including any amounts paid to the lender, to a broker, or both, will generally not exceed 3% of the loan amount for the majority of loans. (Smaller balance loans may see fees up to 5%).

Is it possible to save money on this closing cost line item? 
Yes. Working with a mortgage broker is optional, and buyers should consider the pros and cons before using a broker’s services.

Credit report fee

This fee covers the cost to pull your credit report from the three main reporting bureaus: Equifax, Experian, and TransUnion.

Credit report fees may range from between $0 and $35; fees on the lower end of that range are more normal, due to lenders having discounted rates with the reporting bureaus.

Is it possible to save money on this closing cost line item? 
Maybe. Your lender will definitely need to pull your credit report, but not all lenders will pass that cost on to you.  Your credit report fee will be listed on your loan estimate if you will be charged for it and with that you can make comparisons from lender to lender.

Discount points

Mortgage discount points are an optional lump sum paid at closing in exchange for a lower mortgage interest rate, and thus a lower monthly payment.

Normally, a discount point is the equivalent of 1% of the loan amount (not the total home price) and that amount will usually reduce the interest rate by 0.25%. Discount points are basically prepaid mortgage interest, and are thus tax deductible. See our mortgage points guide for more detailed information.

Is it possible to save money on this closing cost line item?
Yes. Points are usually optional, so the total here could be zero. You’ll want to discuss whether discount points make sense for you with your lender. While a lower rate may seem attractive, paying the additional cash out-of-pocket in increased closing costs may not be the best for your situation, particularly if you aren’t planning on staying in the home for very long or are likely to refinance within the first few years.

Your licensed loan originator should be able to help you work the numbers to find out what’s right for you! And while the percentage quoted above is a regular standard, some lenders may allow you to negotiate.

Appraisal fee

Your lender will require an appraisal in order to be sure that the value of the property meets or exceeds the purchase price. An appraisal typically costs between $300 and $500.

In many instances, the lender handles everything regarding the appraisal, from choosing the company to paying the bill, though sometimes lenders require the buyer to pay for the appraisal upfront. If that’s not the case, you’ll usually pay this fee at closing.

Is it possible to save money on this closing cost line item? 
Maybe. Some lenders may not pass the appraisal fee on to you, but most will.

Flood certification fee

This fee goes to a third-party certification company that looks at government-produced flood maps to determine whether your property is at risk of flooding. Depending on the findings, your lender may require you to purchase flood insurance, which would require a FEMA Flood Elevation Certificate.

You may also be subject to a flood monitoring fee, which accounts for any updates or changes in your property’s flood status. Flood certification fees usually run around $20; flood monitoring fees run around $40; flood elevation certificates (if needed) cost between $170 and $2,000.

Is it possible to save money on this closing cost line item? 
The certification and monitoring fees are pretty standard and necessary –– and thankfully not too costly, since you won’t be able to negotiate on these.

Mortgage insurance

Mortgage insurance (MI) or private mortgage insurance (PMI) may be required by your lender if you make a down payment that is less than 20% of the purchase price (for conventional loans) or in some cases if you have a government-backed loan (FHA or USDA). Mortgage insurance protects the lender in the event that the homebuyer fails to make payments on the loan.

Conventional loan borrowers may not see a significant sum of mortgage insurance due at closing. If mortgage insurance is necessary, it’s usually rolled into the monthly payment.

Borrowers with government-backed FHA loans may need to pay up to 1.75% of the loan cost at closing for mortgage insurance, in addition to the mortgage insurance that’s built into their monthly payments. In some cases, lenders will allow borrowers to roll the upfront fee into their mortgage balance, though that option will increase the loan amount and overall costs.

Is it possible to save money on this closing cost line item? 
You’re unlikely to get a break on mortgage insurance. If mortgage insurance is making your closing costs too overwhelming, talk with your lender about rolling the upfront costs into your loan.

Prepaid mortgage interest

This closing fee represents the daily interest due from the date of closing to the date of your first scheduled mortgage payment. Usually, mortgage payments are due on the first of the month, so prepaid mortgage interest accounts for the interest due on the days between closing and the first of the month.

Is it possible to save money on this closing cost line item?
Maybe, if you can control the closing date.

Helali says, “The earlier in the month somebody ends up closing, the more expensive that prepaid interest is going to be.” Therefore if you want to save on prepaid interest, it’s in your best interest to ask for a closing date near the end of the month, if you can.

VA funding fee

To offset the cost of administration, VA loan borrowers must pay a fee at closing. This fee ranges in cost, depending on your down payment. Borrowers can expect the fee to be between 1.4% and 3.6% of loan amount.

Certain classifications of service personnel are exempt from the funding fee. The VA provides a detailed chart for more information on this fee due at closing.

Is it possible to save money on this closing cost line item?
Yes, if you’re willing to make a larger down payment. Talk with your lender about your specific situation.

Title costs

Processing the title for your home also brings with it certain fees.

Title search

A title company will search for any liens or claims on the property. Their search ensures that the seller truly has the right to sell the home to you, and that when you purchase the home, the title will be yours, “free and clear.” Title searches usually cost around $200.

Is it possible to save money on this closing cost line item?
Yes. As a buyer, you generally can choose the title company, so feel free to shop around for the lowest title search fees. Your real estate agent can give you recommendations.  In some locations it may be local custom for the seller to pick the closing agent, but you can request a different title insurer if you wish.

Title settlement fee

The settlement fee covers the administrative duties that surround the closing, including deed creation, wire transfer coordination, government filing work, document preparation, and more.

This fee may also be listed as simply the “closing fee” and may cost between $295 and $1,595.

Is it possible to save money on this closing cost line item?
Yes. In many places the buyer gets to choose the closing or settlement agent (often referred to as “title” or “escrow” agent, and with that,  this is another fee you can ask about upfront.  You may have less flexibility, however, if you are buying in a place where the closing agent is traditionally chosen by the seller.

Title insurance policy: Lender

This insurance policy protects the lender if a dispute in ownership may arise. It may run anywhere between $500 and $2,600, depending upon your location, the insurance carrier, and the price of the home.

Is it possible to save money on this closing cost line item?
Maybe. Ask your title agent about any available options in your title insurance carrier.

Title insurance policy: Homeowner

This policy is the one that protects you in the same way that the policy above protects the lender. The costs are usually identical on the closing statement.

Is it possible to save money on this closing cost line item?
Maybe. As with the lender’s policy above, you’ll want to discuss options with your title agent.

Other costs

There are various other costs that may or may not be incurred at closing.

These costs are fairly standard, regardless of whether or not the buyer has a mortgage loan. But buyers who obtain a mortgage may be required to pay some of these costs, whereas cash buyers may opt out of them.

Home inspection

Home inspections are an important part of the due diligence process in which the property is carefully looked over by a professional. Home inspection costs range between $300 and $500, but if you paid the inspector directly, you won’t see this on your closing statement.

Is it possible to save money on this closing cost line item?
Yes. Buyers can usually choose their own home inspector, so you can shop around for the best rates.

Pest inspection

A pest inspector examines the house for termite damage, dry rot, and any evidence of pests. The cost is usually around $100, and this inspection may be required by certain lenders or for government-backed loans.

Your home inspector may or may not be able to conduct a pest inspection for an additional fee. If you pay the inspector directly, you won’t see this fee at closing.

Is it possible to save money on this closing cost line item?
Yes — although you probably won’t save much. The overall average for pest inspections is $100, but the typical range is between $75 and $125 for home purchases.

Survey fee

Lenders may require surveys in order to verify the boundaries and lot lines of a property, particularly on large or rural parcels.

Surveys generally run between $300 and $800 depending upon the location and terrain difficulty of the property. They’re usually ordered by the lender, and therefore they will often be a part of the closing statement.

Is it possible to save money on this closing cost line item?
Maybe. Usually the lender will take care of ordering the survey, and most surveyors in your area will have similar standard costs. But if you want to shop around for survey services, ask your lender if that’s a possibility in your situation.

Transfer taxes

Transfer taxes –– a tax realized when a property changes ownership –– may be imposed by your city, state, or municipality.

The amount varies greatly depending upon your locale. In some areas, the seller pays the transfer tax.

Is it possible to save money on this closing cost line item?
No. If transfer tax is required in your area, there’s nothing you can do about it (though you can always try to negotiate closing credit with the seller). But your loan officer should be able to give you an estimate of the cost upfront.

Attorney fee

An attorney fee may be paid to a lawyer who assists with the legal aspects of closing. Some states require an attorney at closing, while others do not. If an attorney is not required in your state, ask your real estate agent if they recommend hiring one in your situation.

Attorneys typically charge between $150 and $300 per hour, or a flat fee of anywhere between $950 and $5,000. If an attorney is involved, you may see lower fees in the “title costs” section, because some of the title agent duties will be handled by the attorney.

Is it possible to save money on this closing cost line item?
Yes. If you need or want an attorney involved in your home purchase, you should absolutely shop around and get recommendations — while also making sure that the attorney has proper experience and expertise in real estate closings.

Flood insurance

Flood insurance may be required by your lender, depending on the findings of the flood certification. Flood insurance varies by state, but on average, it costs $699 per year.

Is it possible to save money on this closing cost line item?
Not really. There are only about 60 flood insurance carriers nationwide, and all of them are backed by FEMA’s National Flood Insurance Program.

The premium amount is pre-determined by the flood elevation and certification data. You can ask your insurance agent about possible options, but most likely you won’t see any change in premium price.

Prepaid property taxes

Property taxes are prorated for the actual number of days in the tax year (or period) that you will own the home. Some local governments charge tax for the previous year, and some charge for the year to come.

Your title agent will look at when the last tax bill was paid by the seller and what time period that tax applied to. If the seller paid tax for a time period that overlaps with when you will own the home, then you must pay the seller back for that portion of the tax.

For example, let’s say the seller paid their property tax on January 1 for the upcoming year. You purchase the home on July 1, halfway through the year. You’ll need to pay the seller back for half of their property tax because you’ll own the home for half of the year. The title agent will literally count the days of ownership to ensure that the tax is distributed fairly based on ownership time.

Is it possible to save money on this closing cost line item?
No. Your portion of property taxes cannot be changed, but you should always verify the amount. If you need assistance, ask your real estate agent.

Homeowner’s insurance premium

Your first annual homeowner’s insurance premium will usually be required by your lender at closing.

Is it possible to save money on this closing cost line item?
Yes. You should definitely compare several homeowner’s insurance quotes to make sure you’re getting the best rates and coverage.

Recording

This administrative fee goes to your local government office –– usually the county clerk. The fee covers the processing of public ownership records; it usually runs around $125, but can be higher depending on where you live.

Is it possible to save money on this closing cost line item?
No. It is what it is!

Prepaid HOA fee

If the home you’re purchasing is part of a homeowners association (HOA), you’ll probably have to pay a portion of the dues at closing (either prorated to the seller or in full for the next year).

You may also be subject to a one-time HOA transfer fee. Your purchase contract and the HOA bylaws should outline all of this for you prior to closing.

Is it possible to save money on this closing cost line item?
No. But be sure to ask for all HOA documents during your due diligence period so you’re not surprised by the costs at closing.

How do you find out about your closing costs?

Your lender will provide a Loan Estimate no later than three days after you complete your mortgage application (which generally happens after you have identified a specific property). This document will give you a good idea of what to expect when it comes to closing costs, but it’s not going to be exact.

Three days prior to closing, the lender will provide a Closing Disclosure form that reflects the exact amount you’ll need to bring to the table for closing costs.

Helali says, “Between the time that someone gets their Loan Estimate to the Closing Disclosure, some fees can change. However, there are some fees that cannot change.”

He details it this way:

The fees associated with the lender — those loan origination fees we discussed earlier — cannot change. A lender cannot suddenly decide their origination fee is $1,000 when the Loan Estimate said it was $0.

The fees associated with some third parties (such as an appraiser) can only go down. If the Loan Estimate says $500 for an appraisal, your closing statement will reflect the actual appraisal amount up to $500 –– if the appraiser charges more than $500, the lender has to absorb the difference unless the reason for the additional expense is based on a change you requested (e.g. you decided to make an offer on a different house or chose a different loan program that requires an additional appraisal).

Some fees associated with the title agent can change within a variance of 10% or an unlimited amount if it is a settlement agent you chose. The lender will  do their best to estimate the title costs on the Loan Estimate, but when it comes down to the Closing Disclosure, some fees may be just slightly higher in this section.  If the fees change due to the confirmation of your chosen settlement agent, the lender should issue you a revised Loan Estimate to confirm these changes.

Things like prorated taxes and prepaid interest may change because they will reflect the reality of the closing date. And of course, insurance premiums may change from the Loan Estimate because you choose the actual insurance company.

Helali says it’s important to discuss your Loan Estimate with your loan officer so you can prepare properly for closing.

“Ask your loan officer, ‘What can change for the better? What can change for the worse?’ And always prepare for the worst.”

Seven tips to reduce your closing costs

• Request a seller credit. Motivated sellers may pay some closing costs for you.
• Shop around where you can (inspection, title agency, insurance, and so on)
• Compare multiple lenders. Some charge higher lender fees, and some offer competitive fees.
• Schedule your closing appointment at the end of the month to reduce prepaid interest costs.
• Consider using a lender credit or rolling your closing costs into your loan amount, if possible.
• Review your Loan Estimate and Closing Disclosure closely to make sure you’re not being overcharged.
• Use a down payment assistance program so you can have more cash to put toward closing costs.

When preparing to purchase a new home, closing costs should always be a part of the plan. Closing costs can never be avoided completely, but they can be managed. With a working knowledge of closing costs, homebuyers can go to the closing table confidently.

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