Closing costs explained for buyers and sellers
Closing costs are the fees and charges paid to finish a home sale. There is no single percentage that fits every deal: your total depends on your state, county, loan and contract.
Key points
- Closing costs come from lenders, title and escrow companies, attorneys and local governments.
- Who pays what depends on your contract and local custom. Most items are negotiable.
- Mortgage borrowers get a Closing Disclosure three business days before closing.
- Get written quotes and compare them; some services can be shopped for.
What closing costs are
When a home changes hands, several people do work: the lender, the appraiser, the title company, the escrow or settlement agent, sometimes an attorney, and the county that records the deed. Their charges, plus some taxes and prepaid bills, make up closing costs. Some are paid by the buyer, some by the seller, and some are split.
Common buyer closing costs
- Lender charges: origination charges, any points you choose to pay, and fees for the credit report and appraisal.
- Title: the title search and the lender's title insurance policy; owner's title insurance in some areas.
- Settlement or escrow fee: paid to the company that runs the closing.
- Government recording fees and, in some places, transfer taxes.
- Prepaid items: homeowners insurance, interest up to the first payment and property taxes.
- Escrow account deposits that your lender holds to pay future taxes and insurance.
- HOA charges such as transfer or document fees, where they apply.
Common seller closing costs
- Mortgage payoff and any other liens.
- Owner's title insurance for the buyer, where local custom puts it on the seller.
- Settlement or escrow fee, or your share of it.
- Transfer taxes where your state or county charges them.
- Attorney fees, if you use one.
- Prorated property taxes, HOA dues and utilities up to the closing date.
- Any credit you agreed to give the buyer, and any buyer's agent fee you agreed to pay.
Who sets each cost
| Cost | What it is | Who sets the amount |
|---|---|---|
| Origination charges and points | The lender's charge for making the loan | Your lender (compare Loan Estimates) |
| Appraisal | An independent value of the home for the lender | The appraiser or appraisal company |
| Title search and title insurance | Checks ownership and protects against title problems | The title company; some states regulate rates |
| Settlement or escrow fee | Running the closing and holding the money | The title, escrow or attorney office |
| Recording fees and transfer taxes | Recording the deed and loan; taxes on the transfer | State, county or city government |
| Prorations | Splitting taxes, HOA dues and utilities by date | The contract and the closing date |
| Seller credits | Money the seller agrees to put toward buyer costs | Your negotiation, written in the contract |
The documents that show your costs
Loan Estimate. Buyers who apply for a mortgage receive a Loan Estimate. The CFPB suggests requesting several from different lenders to compare (CFPB).
Closing Disclosure. Your lender must give you this form three business days before your scheduled closing. Its five pages list your loan terms, closing costs, seller credits and cash to close. Use those days to compare it with your Loan Estimate and fix problems (CFPB).
Seller's settlement statement. Sellers receive a statement from the closing office that lists the price, payoffs, credits, charges and the money they will receive. Check every line against your contract.
How to lower closing costs
- Shop the services you are allowed to choose. Page 2 of the Closing Disclosure shows which services you shopped for and which you did not (CFPB).
- Ask each provider for a written quote and compare like with like.
- Negotiate: sellers can offer a credit instead of a price cut, and buyers can ask for one.
- Pick your closing date with care, because it changes prepaid interest and prorations.
- Use the CFPB closing checklist so nothing is missed.
Closing costs and taxes
For sellers, some costs of selling count as selling expenses when you work out your gain. IRS Publication 523 explains the rules. Form 1099-S is used to report real estate sales (IRS); ask your closing office whether one will be filed for your sale.
Sources
- CFPB: Closing Disclosure explainer
- CFPB: Loan Estimate explainer
- CFPB: Mortgage closing checklist (PDF)
- IRS: Publication 523, Selling Your Home
- IRS: About Form 1099-S, Proceeds From Real Estate Transactions
This page continues a topic from the earlier Learning Center at this web address. We wrote it from scratch with current rules and sources.
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