How Much Will You Pay In Average Closure Costs?

Average Closing Costs

Main Takeaways

  • What are the closing costs?
  • What payments can be included in the closure costs?
  • How to reduce closure costs

The first time you start as a real estate developer, you’re hit over the head again and again on how necessary it is to weigh all the costs when you run the numbers. As you gain experience, you’ll be better off knowing even the most sneaky costs, one of which are closing costs. Understanding how such costs operate, and understanding the typical closing costs at any given time, will help you enhance the estimate of the true cost of closing an arrangement. Let us first describe what closing costs are before we venture into the specifics of what they entail, how they operate, and how you may theoretically be able to prevent them altogether.

Understanding Closing Costs

Closing costs are payments immediately related to the real estate agreement between the buyer and the seller. The phrase is self-explanatory, because it points to the payments owed at the time of sale, which is the period that the property is passed from the seller to the buyer.

What Are Typical Closing Costs?

According to Zillow, the average closing costs vary from 2.0 percent to 5.0 percent of the selling price of the house. This means that with a typical home in the U.S., which is about $315,000 according to, closing costs will be anywhere from $6,300 to $15,750 on average. That’s not a cheap price tag, so you’re most likely asking what kind of fees could add up such a big sum. A list of usual closure costs is given in the next section.

What Fees Will This Include?

Now, you might be asking what could possibly help run up a price tag of more than $16,000 from one part of the home purchase process. Just take a look at the length of the list below, and you’ll start to understand why. In addition, note that the definitions below are meant to include some of the most common fees and that the list is not exhaustive.

  • Application Fee: After applying for a home loan, the provider will also charge you an processing fee to approve the loan. Be sure to inquire precisely what is included with the charge, because it may require a credit check or appraisal charge as well. Not all lenders charge the application fee, so know it’s negotiable.
  • Appraisal: This fee is paid to the appraisal agency responsible for determining the actual market value of the land.
  • Attorney Fee: In some states, it is needed to hire an impartial solicitor to review all the closing papers on behalf of all the parties concerned.
  • Escrow Fee: The escrow or closing fee is charged to an outside entity that manages and encourages the closure of the house.
  • Courier Fee: This fee refers to the cost of transporting all legal documents.
  • Credit Report: If not already included in the mortgage application fee, the lender will most likely charge a fee to run your credit report.
  • Home Inspection: It is highly recommended that you carry out a final home inspection to double-check the condition of the property before formally declaring it to be yours.
  • Insurance: Title and homeowner insurance are also often charged at the time of sale. Homeowner’s insurance protects against potential property damage, while title insurance ensures the landlord that you truly own the home and that the mortgage is not up against any bonds.
  • Loan Discount Points: You can choose to prepay a certain amount of “points” to your mortgage loan, which will help you lower your monthly payments over the duration of your loan.
  • Prepaid Interest: Most lenders would require you to prepay any interest that is supposed to accrue between the date of closing and your very first mortgage payment.
  • Title Search Fee: The title company must dig through documents to find the title to the land. The fees associated with this role have to be paid.
  • Transfer Taxes: There are, of course, taxes on everything. This particular tax is on the transition of the title from the seller to the buyer.
  • Underwriting Fee: This charge is levied by the lender and is sometimes referred to as the administrative or processing fee. This fee shall cover the expense of the mortgage authentication.

How Can You Avoid Closing Costs?

Although the sheer amount of commissions, insurances and taxes that make up closing costs can be overwhelming, many seasoned real estate owners and buyers know how to reduce these costs significantly β€” and, in some situations, prevent them completely. The fees are paid either by the buyer or the seller, so in many cases you can negotiate in such a way that many of the fees are paid by the other party, especially if you have some kind of leverage (such as if it’s a buyer’s market or if the property needs to be renovated significantly). In addition, you may also sometimes find deals where there are no closing fees associated with the mortgage. However, be cautious when entering into this sort of contract, because costs can occur in many ways in the long term. Don’t be shy to inquire if any payments can be waived when you work with your lender. Any expense you can save on is worth the negotiating effort.

In Conclusion

When you’re doing your next deal review, just note that typical closing costs should range between 2.0 percent and 5.0 percent of the selling price of the house. You should play it wisely and give yourself an average of 5.0 percent, but be confident that you may be able to work your way down to the 2.0 percent ballpark. This will give you some space to exercise your bargaining skills to make sure you don’t have any problems at the time for your fragile budget.