Settlement Costs
Real Estate Closing Costs Explained
Closing costs are the fees and charges paid at settlement to complete a real estate transaction. Buyers typically pay 2–5% of the loan amount in closing costs; sellers typically pay 6–10% (largely commissions). Here's exactly what each line item is.
Buyer vs. Seller Closing Cost Overview
Buyer Closing Costs
Typically 2–5% of the loan amount. Includes loan origination, appraisal, title insurance (lender's policy), prepaid interest, and escrow setup.
Seller Closing Costs
Typically 6–10% of the sale price. Largest item is usually real estate commission (4–6%), plus title insurance (owner's policy), transfer taxes, and prorated taxes.
Shared Costs
Some costs are negotiable between parties — attorney fees, home warranty, transfer taxes in some states, and any seller concessions.
Common Buyer Closing Cost Line Items
Loan origination fee: 0.5–1% of loan amount
Discount points (optional): 1 point = 1% of loan, lowers rate
Appraisal fee: $400–$750
Credit report fee: $25–$50
Title search fee: $150–$400
Lender's title insurance: 0.1–0.5% of loan amount
Owner's title insurance (sometimes buyer pays): 0.5–1% of purchase price
Escrow/settlement fee: $300–$700
Recording fees: $50–$200
Prepaid interest (per diem): varies by closing date in the month
Homeowners insurance premium (first year often prepaid)
Property tax escrow: 2–3 months prepaid
Closing Costs FAQ
Can closing costs be rolled into the mortgage?
Sometimes. Some loan programs allow 'no closing cost' options where fees are rolled into the loan balance or offset by a higher interest rate. This reduces upfront cash but increases the total loan cost.
What is a seller concession?
A seller concession is when the seller agrees to pay a portion of the buyer's closing costs, often as a negotiated term of the purchase contract. Common in buyer's markets or when the buyer is short on cash.
What is a Closing Disclosure?
The Closing Disclosure (CD) is a 5-page standardized form lenders must provide at least 3 business days before closing. It itemizes all loan terms, costs, and credits. Buyers should review it carefully against the Loan Estimate received earlier.
Are closing costs tax deductible?
Most closing costs are not deductible. Exceptions include mortgage points (may be deductible in the year paid) and prepaid mortgage interest. Sellers may be able to deduct some costs that reduce their gain. Consult a tax professional.