Closing costs are one of the most commonly underestimated expenses in a real estate transaction. Buyers and sellers both pay them, but in different amounts and for different things. Knowing what to expect before you get to the closing table helps you negotiate better and avoids surprises at the worst possible moment.
What Are Closing Costs?
Closing costs are fees paid at the settlement of a real estate transaction — the point when ownership officially transfers from seller to buyer. They're separate from the down payment and the purchase price.
Both buyers and sellers have their own set of closing costs, though in some transactions these are negotiated and shifted between parties.
Buyer Closing Costs
Buyers typically pay 2–5% of the loan amount in closing costs. For a $400,000 home with a $320,000 loan, that's roughly $6,400–$16,000.
Loan origination fee: The lender's fee for processing the mortgage, typically around 1% of the loan amount. Some lenders charge less and recoup it through the interest rate.
Appraisal fee: Required by the lender to confirm the home is worth the purchase price. Usually $400–$600.
Title insurance (lender's policy): Protects the lender against title defects. Typically 0.5% of the purchase price. You may also want an owner's title policy, which is usually priced separately.
Home inspection: Not technically a closing cost since it's paid upfront, but it's a required out-of-pocket expense. Usually $300–$500.
Transfer taxes: A tax on the transfer of property, paid to the state or municipality. Rates vary widely — some states charge nothing, others charge 1–2%+.
Recording fees: Fees to record the deed and mortgage with the county. Usually $150–$300.
Prepaid interest: Interest that accrues between closing day and the end of the month, paid upfront.
Escrow setup: Initial deposits into the escrow account for property taxes and insurance. Usually equivalent to 2–3 months of expenses.
Seller Closing Costs
Sellers typically pay more in closing costs than buyers, largely due to agent commissions.
Agent commissions: Traditionally 5–6% of the sale price, split between the listing agent and buyer's agent. Following the 2024 NAR settlement, commission structures are more negotiable, but this remains the largest single cost for most sellers.
Transfer taxes: In many states, sellers pay transfer taxes as well as (or instead of) buyers.
Title and escrow fees: Costs to facilitate the closing and ensure clean title transfer. Typically $800–$1,500.
Prorated property taxes: If taxes are paid in arrears, the seller owes their share of the current tax year up to the closing date.
Recording fees: Fees to record the satisfaction of the existing mortgage.
For a home that sells for $400,000 at a 6% commission, the seller pays $24,000 in commissions alone — before any other costs. Total seller closing costs often run 8–10% of the sale price.
What Can Be Negotiated
Most buyers don't realize that closing costs can be negotiated — both with the seller and with the lender.
Seller concessions: In a buyer's market, sellers may agree to cover some or all of the buyer's closing costs in exchange for a higher sale price or to close the deal faster.
Lender credits: You can often take a slightly higher interest rate in exchange for a lender credit that offsets upfront closing costs. This is called a "no-closing-cost loan" — the costs aren't waived, just rolled into the rate.
Shop for title and escrow: Unlike lender fees, title and escrow fees aren't locked to your lender. You can shop around for a title company in states where that's permitted.
Closing Costs vs. Prepaids
Closing costs and prepaid expenses are distinct:
- Closing costs are one-time fees for services rendered (origination, appraisal, title work).
- Prepaids are amounts collected upfront to fund the escrow account (taxes, insurance) and cover interest due before your first payment.
Your Loan Estimate (required within 3 business days of loan application) breaks these out separately, so you'll know what's a fee and what's just money being held in escrow.
Estimate Your Costs Before Closing
Use the Closing Cost Calculator to get a detailed estimate of buyer or seller closing costs based on purchase price, loan amount, and your state's transfer tax rate. You can toggle between buyer and seller mode to see both sides of the transaction.