What are Closing Costs?
Closing costs are the total fees that are paid for the services required when you purchase a home. They are usually paid by the buyer of the home while the seller pays the real estate commission. Closing costs will include expenses such as property-related charges, lender fees, insurance costs, and any other costs that are incurred to finalize the mortgage. Some of these expenses are fixed and will be the same for anyone buying a similar valued home. Some of the expenses you can shop around for and get a lower fee.
How much are closing costs?
Closing costs are different for all home buyers as they are dependent on the price of the home, location, and other fees. Although, it's difficult to accurately determine closing costs, the average total closing costs for most buyers is 2%-5% of the loan amount. The best way to pay closing costs is upfront as most of the costs are a one-time expense and are not recurring through the mortgage. Another way to lower closing costs (and generally the cost of buying a house) is to look for government assistance programs such as the Homes for Heroes program, and a first time home buyer program that can assist you with closing costs and meet minimum down payment requirements.
The chart below shows the average closing costs (including taxes) as reported by ClosingCorp. Indiana has some of the lowest closing costs in the country.
Avg Closing Costs (with taxes)
Avg Closing Costs (no taxes)
Percent of Avg Sale Price
Who pays closing costs?
Closing cost are in most cases paid by the buyer of the house. There are situations where the seller covers some of the closing costs. If it is a buyer's market, where there are excess sellers and fewer buyers, or if the seller is in a rush to sell, closing costs can be used as a bargaining chip by the seller in order to make the sale go through. In these situations, the might agree to pay some of the closing costs, known as seller-paid closing costs. Your Realtor® will advise you on which way to go.
What is included in closing costs?
Closing costs can be divided into four main cost segments with each having its own subset of fees. Some of the fees are fixed, such as their cost does not change from situation to situation. However, a majority of the fees are variable, which means you can shop around to get the lowest cost offer.
Below is a closing costs summary table provided by casaplorer.com:
How do I reduce my closing costs?
One of the largest closing costs is lender fees, especially origination charges, which can be close to 1% of the loan amount. This is where you can really try to save money. By shopping around for different lenders and with proper negotiations, these fees can be brought down significantly.
Some banks and lenders offer no-closing-cost mortgages. With this special type of loan, the lender bundles the closing costs of your mortgage directly into your principal balance. This means that you pay for the closing costs over time instead of having to pay them upfront at closing. Keep in mind that no-closing-cost mortgages typically have a higher rate, which means you will be paying more interest over time. However, this option is still a suitable alternative for borrowers that might not have enough savings to cover closing costs today, and can be a lower-interest cost option compared to alternatives such as getting a personal loan to pay for buyer closing costs.