What You Need to Know About Closing Costs

Buying or selling a home involves more than just agreeing on a price. One of the most important — and sometimes surprising — parts of the transaction is closing costs. Whether you’re a first-time buyer or a seasoned seller, understanding what these costs include can help you avoid surprises at the closing table.

What Are Closing Costs?

Closing costs are the fees and expenses you pay when a real estate transaction is finalized. They are separate from the down payment (for buyers) and are typically due on the day of closing. These costs cover services provided by the lender, title company, local government, and other third parties involved in the process.

Who Pays Closing Costs?

Both buyers and sellers pay closing costs — but the breakdown depends on local custom, the contract terms, and negotiation. In some cases, sellers may agree to cover some or all of the buyer’s closing costs as part of the deal.

Typical Closing Costs for Buyers

Buyers can expect to pay 2% to 5% of the purchase price in closing costs. Here’s what’s usually included:

• Loan origination fee – Charged by the lender for processing your loan.

• Appraisal fee – To confirm the home’s market value.

• Credit report fee – For pulling your credit report.

• Underwriting/processing fees – For verifying your financial documents.

• Title search and title insurance – Ensures the seller has legal ownership.

• Escrow fees – For handling the legal and financial details of closing.

• Homeowner’s insurance (first year) – Often required upfront.

• Prepaid property taxes and interest – Based on your closing date.

• Recording fees – Charged by your local government to record the deed.

Typical Closing Costs for Sellers

Sellers usually pay 5% to 10% of the sale price, with the largest portion being the real estate commission. Other costs may include:

• Agent commissions – Typically 5% to 6%, split between buyer and seller agents.

• Title insurance (owner’s policy) – Protects the buyer’s ownership.

• Escrow or attorney fees

• Outstanding property taxes

• Transfer taxes (if applicable)

Can You Reduce Closing Costs?

Yes. Here are a few ways to manage or reduce them:

• Negotiate with the seller – Buyers can request that sellers contribute to closing costs.

• Shop lenders – Compare loan estimates to find the most competitive rates and fees.

• Ask about lender credits – Some lenders offer credits in exchange for a slightly higher interest rate.

• Look for local programs – First-time buyer programs may offer grants or assistance.

Final Thoughts

Closing costs are a key part of the home buying and selling process, and being prepared helps ensure a smooth transaction. Whether you're reviewing your loan estimate or reviewing a net sheet as a seller, understanding these costs will give you more control and confidence at the closing table.

Have questions about what closing costs might look like for your specific situation? I’m here to help you break it down.