Mortgage Closing Costs
Mortgage closing costs are fees and expenses paid at the completion of a home purchase or refinance, separate from the down payment. They typically total 2 to 5% of the loan amount. On a $400,000 loan, that is $8,000 to $20,000. Some closing costs are fixed by third parties and not negotiable. Others, including the origination fee, can be negotiated. Seller concessions and lender credits are two common ways to reduce cash needed at closing.
| Cost Item | Typical Range | Negotiable? |
|---|---|---|
| Loan origination fee | 0.5% to 1% of loan | Yes |
| Appraisal fee | $400 to $700 | Limited |
| Title search | $75 to $200 | No (set by title company) |
| Lender's title insurance | $500 to $1,500 | No |
| Owner's title insurance | $500 to $1,500 | Optional |
| Recording fees | $25 to $250 | No (set by county) |
| Prepaid interest | Varies by closing date | No |
| Homeowners insurance (1 year) | $800 to $2,500 | No |
| Property tax escrow (2 to 3 months) | Varies | No |
| Homebuyer attorney (some states) | $500 to $1,500 | No |
What Are Closing Costs?
Closing costs are the fees and expenses paid at closing, separate from the down payment, that complete the legal and administrative work of the mortgage transaction. They cover the lender's processing work, the appraisal, title services, recording fees, prepaid escrow items, and government taxes where applicable.
Full Breakdown of Closing Cost Items
Closing costs fall into three buckets. Lender fees include the origination fee, underwriting fee, and any discount points. Third-party fees include the appraisal, title work, credit report, and any required inspections. Prepaid items include the first year of homeowners insurance, several months of property tax escrow, and prepaid interest from closing to the end of the month.
Which Closing Costs Are Negotiable?
Negotiable: origination fee, underwriting fee, processing fee, discount points (you choose whether to buy them), lender title insurance (some lenders mark this up). Limited negotiation: appraisal fee (some lenders shop the AMC). Not negotiable: recording fees (set by county), transfer taxes (set by state), prepaid items (set by your insurance and tax bills).
What Are Seller Concessions and How Do They Work?
Seller concessions are credits the seller gives the buyer at closing to cover closing costs. They are negotiated as part of the offer and disclosed on the Closing Disclosure. Limits vary by program: conventional allows 3% to 9% depending on down payment, FHA allows up to 6%, VA allows up to 4% for true concessions, and USDA allows up to 6%.
In slower markets, asking for a seller concession is often a cleaner negotiation than a lower purchase price. The seller's net is the same, but the buyer's cash to close drops by the concession amount.
What Are Lender Credits?
Lender credits are money the lender contributes to your closing costs in exchange for a higher interest rate. A typical trade is roughly $1,000 in lender credit per 0.125% of rate increase. Lender credits are useful when you need to preserve cash for the down payment but can absorb a slightly higher monthly payment.
How to Reduce Your Closing Costs
Shop at least two lenders and compare Loan Estimates side by side. Ask the seller for a concession. Use lender credits if you need to preserve cash. Skip optional owner's title insurance only after you understand what it covers. Time your closing toward the end of the month to reduce prepaid interest.
Can You Roll Closing Costs Into Your Loan?
Sometimes. On a refinance, you can almost always roll closing costs into the new loan as long as the resulting LTV stays within program limits. On a purchase, you generally cannot finance closing costs directly, but you can negotiate a higher purchase price plus a seller concession to achieve the same effect (subject to the appraisal supporting the higher price).
What Is a No-Closing-Cost Mortgage?
A no-closing-cost mortgage uses lender credits to cover all closing costs in exchange for a higher interest rate. The closing costs do not disappear: they are paid through the higher rate over the life of the loan. This makes sense when you plan to refinance or sell within a few years, when the higher rate has not yet outweighed the upfront savings.
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Frequently asked
How much are closing costs on a house?
Closing costs typically run 2 to 5% of the loan amount. On a $400,000 loan, that is $8,000 to $20,000. The exact figure depends on the lender, the state, and the loan program. Your Loan Estimate, issued within 3 business days of application, gives a binding range.
What is included in closing costs?
Lender fees (origination, underwriting), third-party fees (appraisal, title work, credit report), recording fees and transfer taxes, and prepaid items (first year of homeowners insurance, property tax escrow, prepaid interest from closing date to end of month).
Can the seller pay my closing costs?
Yes, through seller concessions. Conventional loans allow 3% to 9% depending on down payment, FHA allows up to 6%, VA allows up to 4% for true concessions, and USDA allows up to 6%. The concession is negotiated in the offer and disclosed on the Closing Disclosure.
Can you roll closing costs into a mortgage?
On a refinance, yes, as long as the resulting LTV stays within program limits. On a purchase, generally no, but you can negotiate a higher purchase price plus a matching seller concession to achieve a similar effect, subject to the appraisal supporting the higher price.
What is a no-closing-cost mortgage?
A loan in which the lender covers all closing costs through a higher interest rate, using lender credits. The costs are not eliminated, they are paid through the higher rate over the life of the loan. Useful when you plan to refinance or sell within a few years.
Are closing costs tax deductible?
Most are not. Mortgage interest, property taxes, and discount points (in the year paid, on a purchase) are deductible. Origination fees, title insurance, and recording fees are not. Consult a tax professional for your specific situation.
Closing cost estimates are typical ranges and vary by transaction, location, lender, and loan type. This article is for informational purposes only and not a commitment to lend. Encompass Lending Group, LP NMLS #292897. Equal Housing Opportunity.
