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What Closing Costs Should I Expect When Buying a Home?

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A common mistake for first-time homebuyers is failing to account for closing costs. Most homebuyers understand that buying a house is expensive — often the most expensive purchase that a family will ever make — but first-timers are frequently more concerned with the down payment and mortgage. As a result, they can wind up with quite a shock when it comes time to close.

While the exact closing costs you'll pay on the purchase of a home will vary from sale to sale, it's still a good idea to familiarize yourself with the range of potential expenses. Closing costs you might see include:

Assignment fee: Your original lender will probably sell your mortgage to another investor or institution at some point in the lifetime of your loan, but if it's sold immediately, you might have to pay a fee. The fee can be as small as $25, but it may be higher depending on the fees charged by the office that handles the recording of documents in your state.

Attorney fee: If you hire a real estate attorney to represent you in the purchase of a home, you may find one to represent you on a fixed-fee basis. In some parts of the country, fees for real estate attorneys start at around $500, but in other parts of the country you may have to pay an hourly rate.

Delivery and email fees: Your title company or closing agent may charge you a fee for sending and receiving documents from your lender. Each amount may be small on its own, but you may see several of these fees at a closing. For example, the closing agent may charge a fee for receiving the documents sent by your lender, along with a fee to send the documents back once you've signed them.

Flood certification fee: You'll pay this fee to have your lender determine whether your home is in a federally designated flood zone. If it is, your lender may require you to purchase flood insurance before agreeing to lend you money.

Home inspection: While you should generally hire your own inspector to go through the home you are buying well before closing, if you're purchasing new construction, lenders will require a separate inspection to make sure the newly built home has actually been completed before funding your purchase. This fee might range from $75 to $200, depending on the type of new home you're buying.

Appraisal fee: The lender will require an appraisal to make sure your property is worth at least as much as the amount of your loan. The fee will vary depending on the value of the property. In higher-value homes, a lender may require two appraisals and expect you to pay for both of them. Depending on your state, each appraisal fee could be as low as $300 or as high as $700.

Credit reports: Your lender will probably pull your credit reports a few times during the loan application process to make sure your financial situation hasn't changed. Expect to pay $10 to $100 per credit report for each person who has applied for the loan.

Document preparation fee: Your lender will charge a fee to assemble and create the documents for your closing. Expect to pay between $50 and $600. If you didn't purchase the homeowner's policy in advance, you'll have to come to the closing with the funds to pay for your insurance as well.

Tax escrow: Like with homeowner's insurance, the lender will probably require an escrow deposit from you at the closing. In some states, the amount in escrow may be substantial. You need to make sure you know whether you have a real estate escrow in place well in advance of the closing to prepare yourself for the amount that you'll need to have ready. In some states — and depending on the timing of the real estate tax bills — you may receive money from the seller for tax bills that come due after the closing if they cover a portion of the time the seller owned the property.

Underwriting fees: The lender may charge a fee for its underwriting department to complete a final review of your loan.

Loan processing fee: This fee will compensate the lender for the cost of processing your loan. It may range from $100 to $750.

Notary and other fees: Depending on your state, your mortgage paperwork may have to be reviewed and signed by a notary public. The notary public may charge a fee to witness your signature and verify it on the closing documents.

Prepaid interest on the loan: Usually a lender will bill you in advance for mortgage interest from the day your loan closes to the end of the current month. If you close early in the month, the amount will be larger; if you close near the end of the month, the amount will be smaller.

Recording fees for deed or mortgage: You'll receive title to your home in the form of a legal document that must be recorded with your county recorder of deeds. The mortgage needs to be recorded as well. Recording fee varies from state to state, but generally expect to pay at least $100. Additionally, some states charge a mortgage tax, based on the amount of the loan, to record the mortgage. For example, if the state mortgage tax is 1 percent and your loan is for $250,000, the tax will be $250.

Title company or closing agent fee: The closing agent fee is paid to the title company or closing agent to process the paperwork for the closing and to represent your lender in the settlement of your loan. It can run from $200 to $2,500 or more depending on the value of the home and the amount of your mortgage.

Title insurance for the buyer: If you choose to purchase a buyer's title insurance policy, the cost will run $150 to $1,000 or more, depending on the price of the home. If you only buy a lender's title policy and you lose the house because someone makes a title claim to the property, only the lender will get a check. Plus, if you are in the home, it will not be protected now or in the future. You need to buy a separate owner's policy so that you will be fully compensated in this sort of situation.

Title insurance for the lender: Expect to pay $150 to $1,000 or more, based on the value of the house you purchase. In some parts of the country, the seller picks up most or all of the cost of the buyer's title insurance policy and the buyer will pay for title insurance for the lender. Some states have non-negotiable title insurance rates, while in other states, the fees are negotiable. Before closing, figure out whether you can negotiate the rates with the title insurance company.

Transfer tax and municipal inspection fees: You may have to pay taxes to your city, town, village, county or state to transfer the title of the property. These charges vary by location and are usually either a flat fee or based on the sales price of the property. For example, in Chicago, the buyer picks up the city transfer tax — a hefty $3.75 per $500 of the sales price. The range generally runs from zero to $10 per $1,000 of the sales price, depending on the jurisdiction.

In some parts of the country, municipalities have enacted ordinances that force the seller or the buyer to have the local building inspector perform an onsite inspection. You may have to pay that fee in advance of the closing, but, in some instances, you'll owe the municipal inspection fee at the closing table.

Additional fees for condo or co-op purchases

If you're buying in a condo or co-op building, you may be subject to additional charges beyond those listed above. Ask to see the homeowner's association bylaws to find out what you can expect to pay at closing. These fees could include:

  • Condo move-in fee
  • Homeowners association transfer fee
  • Co-op apartment fee
  • Credit check by condo or co-op association board

Don't let this list scare you away from purchasing a home. Not all of these fees will be included in every purchase, and a good mortgage broker and real estate lawyer can walk you through what to expect at the closing table.

Remember to be prepared: It's better to have too much money at the closing table than not enough.

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