What Are Closing Costs? Here’s What You Need To Know

When you purchase or refinance a home, you'll usually owe closing costs. These costs are required in most real estate transactions and typically range from 0.5% to 3% of the purchase price, depending on multiple factors, including state law.

Find out how closing costs are calculated, who pays them, when they’re due, and how to save money.

What are closing costs?

Closing costs are fees you pay to complete a real estate transaction. Though buyers are usually responsible for most closing costs, sellers may agree to cover some of the expense. Typical closing costs include:

• Loan origination and processing fees
• Appraisal fees
• Taxes
• Title insurance
• Settlement fees
• Recording fees
• Prepaid mortgage expenses

Some closing costs are negotiable, while others are not. 

How are closing costs calculated?

Both lenders and third parties may charge closing costs and will set their own fees, which can vary by provider. “It is common to find substantial differences in costs by shopping and comparing loan estimates from different lenders,” says John Donikian, home financing loan officer and vice president of Best Interest Financial.

State law also determines the types of closing costs you need to pay. For example, you will owe attorneys' fees in states that require a real estate lawyer to attend closings. Transfer tax rates also vary from state to state. In 2025, average closing costs ranged from as little as 0.39% of the sales price in South Dakota to as much as 3.06% in Delaware, with a national average of 1.04%, according to purchase quote data from LodeStar. 

Types of closing costs

The table below shows some common closing costs when buying a home and what each fee covers. The list doesn’t include your down payment or mortgage insurance, which you may also owe at closing. 

Not all fees apply to all borrowers. Your lender must provide an estimate of all closing costs, so you’ll know what to expect before closing day.

Do buyers pay for all of the closing costs?

Buyers generally pay for most of the closing costs. However, “Sometimes you can get the seller to pay for closing costs through seller concessions,” says Taylor Tassone, owner and mortgage broker at Tayton Capital LLC.

Seller concessions reduce upfront costs for the buyer and may help a home sell faster, especially if the local market is relatively cool. However, sellers who offer concessions may charge a higher price, enabling buyers to effectively finance the fees instead of pay them out of pocket.

Sellers may also pay certain closing costs in some states. For example, sellers in New York are responsible for paying real estate transfer taxes, while it’s customary for the seller to buy the title insurance policy in some counties in Florida.

When are closing costs due?

Most closing costs are due on closing day. However, certain fees, such as your mortgage application fee, credit reporting fee, and appraisal fee, may be due upfront or billed at the time of service, depending on the lender’s and the service providers’ policies.

You might have the option to roll your closing costs into your mortgage, and some lenders also advertise “no closing cost” mortgages, but the lender will charge a higher interest rate to compensate or add to your loan balance to cover the costs. In either case, you’re still paying for the closing costs.

“Including closing costs in the mortgage may help buyers who want to keep their cash for expenses like moving and repairs,” says Donikian. However, that decision could cost you more over the life of the loan. “A $5,000 fee will end up costing much more because it will incur interest for the many years the loan is active.”

How can you reduce your closing costs?

• Compare lenders and negotiate: Getting multiple loan estimates can help you find the lowest closing costs. You can also negotiate some costs like loan origination and loan processing fees. “Certain components of closing costs can be waived, but some are third-party fees that the lender doesn’t control,” says Tassone. 
• Take advantage of local assistance programs: Down payment assistance and first-time home buyer programs sometimes offer grants or low-interest loans to use toward closing costs. Consult your local housing authority for options. 
• Shop for services: Shop for homeowners insurance and title insurance, and compare title companies handling the closing. Lenders often work with affiliated title companies, but you can choose your own as long as it meets lender requirements. 
• Time your closing day: Closing near the end of the month reduces your upfront costs as you won't owe much prepaid interest. 
• Ask for seller credits or concessions: Sellers may be willing to cover some closing costs or offer a credit toward them, especially in a buyer's market.