What Are Closing Costs?
Closing costs are fees and expenses paid at the settlement table to complete a home purchase. They include lender fees, third-party service fees, prepaid items (like homeowners insurance and property tax escrow), and government charges like transfer taxes and recording fees.
On a $400,000 home, buyer closing costs typically run $8,000–$20,000 depending on the state, lender, and loan type.
Lender Fees (Most Negotiable)
Origination fee: Typically 0.5–1% of the loan amount. This is the lender's primary profit center on the loan. It's negotiable, especially if you have good credit and are shopping multiple lenders.
Points: Optional discount points to buy down your rate. Each point = 1% of loan amount = approximately 0.25% rate reduction. See our rate buydown calculator to determine if this makes sense for you.
Application/processing/underwriting fees: These vary by lender and are sometimes called "junk fees." Shop carefully — some lenders charge $500–1,500 in miscellaneous fees that others don't charge at all.
Third-Party Fees (Shop These)
Title insurance: Protects you and your lender against title defects. You can choose your own title company in most states — don't just use whoever the listing agent recommends. Rates vary by company.
Home inspection: $350–600 for most homes. Essential. Never skip it. Specialized inspections (radon, sewer scope, mold, roof) may add $150–300 each.
Appraisal: $500–750, ordered by your lender. You pay for it but the lender uses it. Not negotiable on lender-required appraisals.
Attorney fee: Required by the buyer or seller in some states (NY, MA, SC, and others). Budget $750–1,500 if applicable.
Prepaid Items (Not Actually Fees)
Prepaids are money you owe but would pay anyway — they're collected at closing to establish your escrow account. They include: 12 months of homeowners insurance paid upfront, 2–3 months of property tax deposited into escrow, and prepaid interest for the remainder of the closing month.
States With the Highest Transfer Taxes
Transfer taxes vary dramatically by state and sometimes by municipality. Delaware charges 4% of the purchase price (buyer and seller split). New York City adds a mansion tax on homes over $1M. Connecticut, Pennsylvania, Maryland, and New Jersey all have significant transfer taxes. Texas, Florida, and most Mountain West states have no state transfer tax.
How to Reduce Closing Costs
Shop lenders aggressively and compare Loan Estimates line-by-line. Negotiate with the seller to pay some or all of your closing costs (called "seller concessions") — this is increasingly common in buyer-favorable markets. Ask your lender about "no-closing-cost" loans, which roll fees into a higher rate — useful if you expect to refinance within 3–5 years.