Closing Cost Breakdown Guide
Complete breakdown of mortgage closing costs, typical fees by category, and strategies to reduce what you pay
Key Numbers
Typical Range
2–5% of Loan
National Avg
$4,661
Title Insurance
Shopable
Seller Credits
Up to 3–9%
Closing costs are the fees and expenses required to finalize a mortgage, typically ranging from 2% to 5% of the loan amount. On a $400,000 loan, that's $8,000–$20,000 beyond your down payment. Costs fall into three categories — lender fees, third-party services, and prepaids — with varying degrees of negotiability.
Cost Categories at a Glance
| Category | Typical Range | On $400K Loan | Negotiable? |
|---|---|---|---|
| Lender Fees | 0.5%–1.5% | $2,000–$6,000 | Sometimes |
| Third-Party Services | 0.5%–1.5% | $2,000–$6,000 | Yes — shop around |
| Prepaids & Escrow | 1%–2% | $4,000–$8,000 | No |
| Total | 2%–5% | $8,000–$20,000 | — |
Disclosure Timeline
Loan Estimate (within 3 business days)
Standardized form showing all estimated closing costs. Required after you apply for a mortgage. Use this to compare lenders apples-to-apples.
Closing Disclosure (3 days before closing)
Final costs with exact figures. Compare to your Loan Estimate — lenders must explain any fees that increased beyond tolerance limits.
State variation: Transfer taxes and recording fees create large state-to-state differences. D.C. averages $17,545 in closing costs while Missouri averages just $358 in title-related fees. Delaware's transfer tax alone is 2.99% of the sale price.
Lender & Loan Fees
Lender fees compensate the mortgage company for processing, underwriting, and funding your loan. These appear in Section A of the Loan Estimate.
| Fee | Typical Cost | Description | Negotiable |
|---|---|---|---|
| Origination Fee | 0.5%–1% | Lender's main processing fee | Sometimes |
| Application Fee | $0–$500 | Upfront processing (may be waived) | Often |
| Underwriting Fee | $300–$900 | Reviewing your loan application | Sometimes |
| Processing Fee | $300–$500 | Administrative paperwork | Sometimes |
| Credit Report Fee | $25–$75 | Pulling credit from bureaus | No |
| Rate Lock Fee | $0–$500 | Guaranteeing your rate (often waived) | Often |
Discount Points & Lender Credits
Discount points are optional prepaid interest: each point costs 1% of the loan and typically reduces the rate by ~0.25%. Lender credits work in reverse — accept a higher rate and the lender covers part of your closing costs. Points favor long-term holders; credits favor those who may move or refinance within 5–7 years.
| Points | Cost ($400K) | Rate Change | Mo. Savings | Break-Even |
|---|---|---|---|---|
| 0 (base) | $0 | — | — | — |
| 1 | $4,000 | −0.25% | ~$58 | ~69 mo |
| 2 | $8,000 | −0.50% | ~$116 | ~69 mo |
Loan-Type Specific Fees
| Loan Type | Special Fee | Amount | Notes |
|---|---|---|---|
| FHA | Upfront MIP | 1.75% | Can be financed into loan |
| VA | Funding Fee | 0.5%–3.6% | Varies by down payment & usage |
| USDA | Guarantee Fee | 1.0% | Can be financed into loan |
| Conventional | PMI (if <20% down) | Varies | May require upfront premium |
Third-Party & Government Fees
Third-party fees cover services from companies other than your lender — title, appraisal, inspection, and government recording. You can shop for many of these; they appear in Sections B and C of the Loan Estimate.
Title & Escrow Services
| Service | Typical Cost | What It Covers | Shoppable |
|---|---|---|---|
| Title Search | $150–$500 | Researches ownership history | Yes |
| Lender's Title Insurance | 0.1%–1% | Protects lender against title defects | Yes |
| Owner's Title Insurance | 0.4%–0.5% | Protects buyer (optional but common) | Yes |
| Settlement/Closing Fee | $500–$1,500 | Conducting the closing | Yes |
| Escrow Fee | $300–$700 | Holding and disbursing funds | Yes |
Appraisal, Inspection & Government
| Fee | Typical Cost | Notes | Required |
|---|---|---|---|
| Home Appraisal | $300–$700 | Determines market value for lender | Yes |
| Home Inspection | $300–$500 | Structural/mechanical assessment | Strongly advised |
| Pest Inspection | $75–$200 | Required by some states; VA always | Sometimes |
| Survey | $300–$800 | Confirms property boundaries | Sometimes |
| Flood Certification | $15–$50 | Determines flood zone status | Yes |
| Attorney Fee | $500–$1,500 | Required in some states (NY, MA, etc.) | State-dependent |
| Recording Fee | $50–$250 | Filing deed with county | Yes |
| Transfer Tax | 0%–2%+ | State/local tax on property transfer | Yes |
Title insurance savings: Costs vary up to 10× between states. In unregulated states, shop 3+ companies. Ask about “simultaneous issue” discounts when buying both lender's and owner's policies together.
Prepaids & Escrow
Prepaid items aren't fees — they're advance payments for taxes, insurance, and interest you'd owe regardless. These aren't negotiable, but understanding them helps you budget accurately.
Prepaid Items Due at Closing
| Item | Typical Amount | How Calculated |
|---|---|---|
| Homeowners Insurance | $1,200–$3,000 | 12 months paid upfront at closing |
| Property Taxes | Varies widely | Prorated from closing to next due date |
| Prepaid Interest | $500–$2,000 | Daily interest × days until month-end |
| Mortgage Insurance | 1–2 months | PMI/MIP if applicable |
Initial Escrow Deposits
Your lender collects extra months upfront to establish the escrow account that pays taxes and insurance on your behalf going forward.
| Escrow Item | Months Collected | Purpose |
|---|---|---|
| Property Taxes | 2–6 months | Buffer until first payment cycle |
| Homeowners Insurance | 2–3 months | Cushion for renewal payments |
| Flood Insurance | 2–3 months | If required for your location |
| PMI/MIP | 2 months | If mortgage insurance required |
Closing date matters: Prepaid interest covers from closing to month-end. Close on the 28th and you pay 2–3 days of interest; close on the 1st and you pay ~30 days. On a $400,000 loan at 6%, that's ~$200 vs. ~$2,000.
Reducing Your Closing Costs
Strategic shopping and negotiation can save $2,000–$5,000 or more. The table below summarizes the main levers available to buyers.
| Strategy | How It Helps | Potential Savings |
|---|---|---|
| Get 3–5 Loan Estimates | Compare total lender fees, not just rates | $1,000–$3,000 |
| Shop title insurance | Prices vary widely; ask for simultaneous issue discount | $500–$1,000 |
| Shop home inspection | Compare 3+ inspectors in your area | $100–$300 |
| Shop homeowners insurance | Premiums vary significantly between carriers | $200–$600/yr |
| Accept lender credits | Higher rate in exchange for closing cost offset | $3,000–$5,000 |
| Close late in the month | Minimizes prepaid interest charges | $500–$1,800 |
| Ask to waive junk fees | Application, rate lock, and some processing fees | $200–$1,000 |
| First-time buyer programs | Many states offer grants or closing cost assistance | Varies |
Maximum Seller Concessions by Loan Type
Sellers can contribute toward buyer closing costs, especially in buyer's markets. Limits are set by loan program and down payment amount.
| Loan Type | Max Seller Contribution |
|---|---|
| Conventional (<10% down) | 3% of price |
| Conventional (10–25% down) | 6% of price |
| Conventional (25%+ down) | 9% of price |
| FHA | 6% of price |
| VA | 4% of price |
| USDA | 6% of price |
Not negotiable: Government recording fees, transfer taxes, prepaid property taxes and insurance, required escrow deposits, FHA/VA/USDA funding fees, and credit report fees are fixed costs you cannot reduce.
Sources
- 1.Consumer Financial Protection Bureau — Closing Disclosure Explainer
- 2.Consumer Financial Protection Bureau — Loan Estimate Explainer
- 3.Fannie Mae — Selling Guide: Interested Party Contributions
- 4.VA Home Loans — VA Funding Fee and Loan Closing Costs
- 5.HUD — FHA Mortgage Insurance Premiums
- 6.CoreLogic / ClosingCorp — Closing Cost Data Survey
This content is for educational and informational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified professional for guidance tailored to your situation.