Mortgage Closing Costs: How Much You’ll Pay

After saving for a down payment, house hunting and applying for a mortgage, closing costs can come as an unpleasant surprise.

Understanding what closing costs cover and budgeting for them will help smooth out the final stretch of the homebuying process.

What are closing costs?

Closing costs include the myriad fees for the services and expenses required to finalize a mortgage. You’ll pay closing costs whether you buy a home or refinance.

How much are closing costs?

Average closing costs for the buyer run between about 2% and 6% of the loan amount. That means, on a $300,000 home loan, you would pay from $6,000 to $18,000 in closing costs in addition to the down payment.

The most cost-effective way to cover the costs is to pay them out-of-pocket as a one-time expense. You may be able to finance them by folding them into the loan, if the lender allows, but then you’ll pay interest on those costs through the life of the mortgage.

When buying a home, you can comparison shop and negotiate some of the fees to lower your closing costs. And some states, counties and cities offer low-interest loan programs or grants to help first-time home buyers with closing costs. Check with your local government to see what’s available.

» MORE: Find first-time home buyer programs in your state

How to determine your closing costs

A local real estate agent can help estimate closing costs based on your area and prospective home price.

After you apply for a mortgage, the lender will outline the projected closing costs along with other details in a Loan Estimate document. You should receive the Loan Estimate within three business days after applying.

In the days before the closing, the lender will provide a final summary of the closing costs in a Closing Disclosure document. Review these documents closely and ask questions about anything you don’t understand.

Meanwhile, you can use a closing costs calculator to estimate how much you'll pay.

Closing costs calculator

Who pays the closing costs?

Most of the closing costs fall on the buyer, but the seller typically has to pay a few, too, such as the real estate agent’s commission and often a real estate transfer tax.

» MORE: What are the closing costs for the home seller?

Buyers can also ask sellers to pay some of their closing costs. When the seller agrees, it's called a seller concession. The seller is more likely to contribute if there are more homes for sale than would-be buyers in the local market, or the property has issues that make it challenging to sell. Your real estate agent can help you decide the best negotiating strategy.

Seller concessions

Lenders place limits on how much sellers can contribute toward the buyer's closing costs, depending on the type of loan. Here are the maximum amounts:

Conventional loan

If the buyer will live in the home:

• Up to 3% of the sale price or the home's appraised value, whichever is less, if the buyer's down payment is less than 10%.

• Up to 6% if the down payment is between 10% and 25%.

• Up to 9% If the down payment is 25% or more.

If the home is an investment property, the limit is 2%, regardless of the down payment.

FHA loan: Up to 6% of the sales price.

USDA loans: Up to 6% of the sales price.

VA loan: Up to 4% of a home loan.