Closing costs explained: What they are and their potential amounts

When you buy or refinance a home, it’s important to budget for closing costs—expenses beyond the down payment required to finalize your mortgage. Typically, closing costs range from 2% to 6% of the loan amount. For example, on a $300,000 home loan, you might pay between $6,000 and $18,000. Understanding these expenses can make the homebuying process a lot more manageable, and potentially more affordable, too.¹

What are closing costs?

Closing costs are one of the final steps before the keys are yours—covering fees for essential services like appraisals, title searches, and more that make your mortgage official. The specific costs you’ll pay depend on your loan type and location, but they’re a necessary part of sealing the deal. Knowing what to expect can help you be prepared when it’s time to close on your dream home.²

How much are closing costs on a home?

Closing costs usually range from 2% to 6% of your loan amount. For a $400,000 mortgage, this means between $8,000 and $24,000 in expenses, covering fees for appraisal, origination, title, taxes, and more. Some fees, like origination and rate lock fees, are negotiable, but others, like inspection and title fees, may not be.¹

What's included in closing costs?

From appraisal fees to title insurance, closing costs commonly cover expenses that secure your new home and make your loan official. Here’s what you can expect to pay for (this varies by region):

• Application Fee: Covers the lender's cost to process your loan application.
• Attorney Fee: Charged by a real estate attorney to handle purchase agreements and contracts in certain states.
• Credit Report Fee: Covers the pull of your credit report from all three major credit bureaus.
• Property Appraisal Fee: Assesses the fair market value of the home.
• Survey Fee: Ensures property boundaries are confirmed.
• Title Insurance & Title Search: Protects against ownership disputes or unseen liens.
• Escrow Deposit: Often required to cover a couple of months’ worth of property taxes and insurance.
• Points: You may be able to pay more upfront to lower your mortgage interest rate over time.
• Transfer Fee: Covers title transfer from seller to buyer (varies by location).¹

Additional fees may also include FHA or VA loan costs and homeowners association (HOA) fees if they apply. With so many moving parts, understanding these fees can help you budget and potentially save on certain negotiable charges.¹

Who typically pays the closing costs?

When it comes to closing costs, buyers usually cover most of the out-of-pocket expenses. But sellers aren’t off the hook. They generally pay the real estate agent commissions for both the buyer’s and seller’s agents, usually around 5% to 6% of the sale price, split between the agents. Sellers might also be responsible for transfer taxes, any seller credits, and potentially attorney fees, depending on state laws.³

What are the closing costs for a buyer?

As a buyer, closing costs can add up quickly. Here’s a rundown of some of the main expenses you’ll likely encounter:

• Appraisal Fee: This fee covers the lender's required appraisal to confirm the property’s value matches the loan.
• Credit Report Fee: This pays the cost of procuring your credit report.
• Home Inspection Fee: This covers the cost of a home inspection, which can check for any defects, damage or other issues the home might have.
• Government Recording Fees: These fees update property records to reflect the change in ownership.
• Loan Origination Charges: The lender’s charges to process your mortgage, including underwriting and application fees.
• Prepaid Expenses: At closing, it's common to pay certain costs upfront, including homeowners insurance, which must be purchased before closing. Learn more about the factors that influence the cost of homeowners insurance and how it’s calculated.
• Title Search & Other Fees: Covers a title search to confirm property ownership, along with any additional closing fees.³

Besides mortgage payments, homeownership involves various ongoing expenses, including comprehensive homeowners insurance. Knowing the different types of homeowners insurance — from standard dwelling and personal liability to optional add-ons like flood or earthquake insurance — can help you select the right coverage for your needs and budget.³

What are the closing costs for a seller?

Selling a home comes with its own set of expenses. Here’s a breakdown of what you’ll likely cover as a seller:

• Real Estate Agent Commissions: Sellers have traditionally covered commissions for both their agent and the buyer’s agent, averaging about 5-6% of the home’s sale price. But that is changing and may not apply in your case. Do your research for your location to understand what you’ll be responsible for in your sale.
• Property and Transfer Taxes: You’ll pay your share of property taxes up to the closing date and often handle transfer taxes. Rates vary depending on local laws, so it’s worth checking the specifics for your area.
• Seller Credits: This cost covers any repairs that were needed or funds the seller contributed to closing costs on behalf of the buyer.
• Attorney Fee: If a lawyer was involved, this fee covers their costs.
• Title Insurance: In some regions, sellers cover part of the title insurance costs to ensure a smooth, worry-free transfer for the buyer.³

Understanding the ins and outs of buying and selling a home is crucial to navigating the process smoothly. Whether you're a buyer facing closing costs like property inspections, appraisals, and insurance, or a seller managing agent commissions and transfer taxes, being prepared for all expenses ensures there are no surprises along the way. Also, some of these costs may be negotiable

And as you wrap up the details, don’t overlook the importance of protecting your new investment. For a variety of options tailored to your needs, explore Nationwide’s homeowners insurance options.