Mortgage closing costs are the fees you pay when you secure a loan, either when buying a property or refinancing. You should expect to pay between 2% and 5% of your property’s purchase price in closing costs. If you’re buying mortgage insurance, these costs can be even higher.

What Are Closing Costs?

Closing costs are the expenses that you pay when you close on the purchase of a home or other property. These costs include application fees, attorney’s fees and discount points, if applicable. With real estate sales commissions and taxes included, total real estate closing costs can approach 15% of a property’s purchase price.

While these costs can be substantial, the seller pays a number of these fees, such as the real estate commission, which can account for about 6% of the purchase price. Some closing costs, however, are the responsibility of the buyer.

How Much You’ll Pay in Closing Costs

The total closing costs paid in a real estate transaction vary widely, depending on the home’s purchase price, loan type and the lender you use. In some cases, closing costs can be as low as 1% or 2% of the purchase price of a property. In other cases—when loan brokers and real estate agents are involved, for example—total closing costs can exceed 15% of a property’s purchase price.

In total, buyers should expect to pay between 2% and 5% of purchase price in closing costs. Their portion of the costs typically includes:

• One or two origination points—lender fees—that equates to 1% to 2% of the loan amount, and usually includes loan origination fees of $750 to $1,200)
• $1,000 or more in loan underwriting fees for things such as an inspection, appraisal, survey and title work
• One or more mortgage discount points if you choose to lower your interest rate by prepaying interest
• Up to 2% of the loan amount as an initial mortgage insurance premium if you decide to use insurance or a government-issued loan (such as an FHA loan) that requires it

The specific closing costs of a real estate transaction—and whether costs are the responsibility of buyers or sellers—are all outlined in the disclosure sections of a purchase agreement and determined by the lender and loan type that the buyer selects.

As for the mortgage itself, you can find your mortgage closing costs in two places: the loan estimate and the closing disclosure, both of which your lender is required to provide. The disclosures vary by lender but must include the total loan amount, interest rate, annual percentage rate and monthly payment schedule.

When Does a Seller Pay Closing Costs?

There are some closing costs that sellers almost always pay themselves. These include real estate agent commissions, prorated real estate taxes and transfer taxes. In certain cases, sellers may also pay the cost of a home warranty (if they’re providing one) and fees for any associations that their property belongs to.

In addition to these items, there are other costs that sellers may also pay, such as real estate commissions and title preparation fees. Ultimately, though, it’s all a matter of negotiation between buyer and seller.

If, on the other hand, you’re refinancing your home, you’ll be responsible for all closing costs.

How to Reduce or Avoid Closing Costs

When you’ve spent months or even years saving for a down payment, searching for a property, negotiating a purchase price, going through due diligence and securing financing, paying closing costs can be an unwanted surprise—and they can make it that much harder to afford your new property.

With that in mind, a lot of people want to try to reduce or avoid closing costs. While it’s impossible to eliminate closing costs entirely, there are some things you can do to reduce your expenses, including:

• Paying cash for the home. For most people, this isn’t an option. But if you can afford it, in some cases you’ll considerably lower your costs (perhaps by about 1% of the purchase price) if you don’t need a loan. You’ll eliminate loan origination fees and appraisal costs, among others.
• Going without a Realtor. As a buyer, you can’t really control the seller’s decisions, but if you buy a property that is for sale by owner, there are no commissions paid to real estate agents, which can cut closing costs considerably—for the seller, at least. Use this to negotiate for other seller concessions to lower your costs.
• Using seller financing. Seller financing—when the seller acts as the bank by holding a mortgage and letting the buyer pay off the property over time—doesn’t usually involve origination fees, and may also allow buyers to skip things like surveys and appraisals. They may also be able to skip inspections, but we don’t recommend this as buyers should still know the state of the property they’re buying before they close.
• Avoiding discount points. Some lenders offer borrowers the opportunity to lower their interest rate by prepaying interest on their loan. Buying down an interest rate can be attractive in the long term because it can significantly lower the total interest paid over the life of your loan, but can also represent significant upfront cost.
• Avoiding mortgage insurance. Conventional mortgages don’t require mortgage insurance for buyers who make a down payment of at least 20%. If you can’t make a 20% down payment, you may have to pay for mortgage insurance; or, if you use an FHA or USDA loan, you’ll have to use the mortgage insurance provided in their loan programs.

Additionally, certain closing costs can sometimes be added to a buyer’s loan amount, rather than paying it in cash at closing. What costs can be rolled into your loan vary by lender, but may include origination fees, appraisal and inspection fees or title fees. While this can lead to some initial cost savings, it will actually increase the total mortgage cost, as you’ll pay interest on these expenses over the life of the loan.