Closing costs on a house can get expensive. Here's how much they are and what they include (2024)

When you're saving money to buy a home, a down payment is usually top of mind. However, it's not the only significant expense associated with obtaining a mortgage. Closing costs are fees and taxes paid to finalize a real estate transaction — and sometimes, they can get surprisingly high.

Below, CNBC Select breaks down the types of expenses included in closing costs, how much you can expect to pay and what you can do to lower the amount.

Some of the closing costs buyers commonly pay include:

• Lender fees, which are costs the lender charges you to create the mortgage loan. As a buyer, you can expect to pay a credit report fee for the lender to check your credit. And if you're buying discount points to lower your mortgage interest rate, the lender will include the price of those points in the closing costs. Lenders also generally charge an application fee, an underwriting fee and an origination fee. However, you might be able to avoid some of these fees with some lenders. For example, Ally Bank doesn't charge application, origination, or underwriting fees.

• Title fees, including title search and title insurance. A title search fee allows your lender to hire a company to check property records for any issues with the title, such as a tax lien. And in case some issues crop up after the sale, the lender also requires that the borrower obtains title insurance to help pay the cost of resolving any problems.
• Appraisal fees, which cover the cost of a professional appraiser determining the home's value.
• Home inspection fees, which cover the services of the home inspector evaluating the property's condition. While you can opt to waive the inspection contingency, it's wise to have your potential new home looked at to avoid any costly surprises down the line. Note that while the inspection is considered a closing cost, you'll probably have to pay it at the time of service (which happens before closing).
• Mortgage insurance premiums or their equivalents, may be required if you're getting a government-backed mortgage and not rolling these costs into the loan.
• Prepaid expenses, including homeowners insurance, property taxes and the mortgage interest that will accrue between the closing date and your first monthly payment. If you're buying a condominium, the Homeowners Association may require that you prepay a move-in fee and HOA fees.
• Additional costs, which may vary depending on your situation. For example, you may be working with a real estate attorney — in this case, you'll need to pay for their services. If the property is in a flood zone, it may require flood insurance, and your closing costs will include a flood determination and monitoring fee. In some areas, the buyer is also responsible for transfer taxes.

While there are plenty of closing costs for the buyer to pay, the seller usually assumes responsibility for real estate agent commissions — both for the listing and buyer's agents — transfer taxes and prorated property taxes, as well as some of the title insurance costs in some areas.

According to a report by ClosingCorp, a provider of residential real estate closing cost data, the national average for mortgage closing costs for a single-family property in 2021 was $6,905, including transfer taxes. That said, closing costs vary greatly based on where you're buying and how much the property costs. For example, the same report found that Missouri had average closing costs of just $2,061, while homebuyers in Washington, D.C. paid an average of $29,888.

The rule of thumb is to budget between 3% and 6% of the loan amount for closing costs. That means if you take out a $400,000 mortgage, expect to pay between $8,000 and $24,000 for these final expenses.

Can you pay closing costs with a credit card?

Paying closing costs with a credit card might sound like an appealing idea. It could help you earn a welcome bonus or, if you're short on cash, a 0% introductory APR credit card could give you more time to pay off such a large sum. Sadly, mortgage lenders typically don't accept credit cards and require that you either wire the money or pay with a cashier's check. On the bright side, you might be able to use your credit card for those costs you pay before the actual closing date, such as home inspection fees.

While you can't get your closing costs waived, you may be able to reduce them or roll them into the loan. Here are some options to explore when you're worried that closing costs might shut you out of homeownership.

Talk to your lender

When you're shopping for a mortgage, ask potential lenders about how they can help you lower closing costs. As we've mentioned, some lenders don't charge certain fees. Others might provide alternative ways to pay these expenses — for example, Bank of America advertises America's Home Grant® program which can give you up to $7,500 towards non-recurring closing costs, like title insurance and recording fees.

If your lender is Chase Bank, you may be eligible for Chase Homebuyer Grant which provides $2,500 or $5,000 that's first applied to decrease your interest rate and then to fees. Finally, even if there are no special programs, you can always try to negotiate with your lender and ask if they can reduce or eliminate some of the lender fees. The worst that can happen is that they say "no."

Look for local assistance

Another option is to find a local down payment assistance program. You may be able to qualify for a grant or forgivable loan in your area to help with the upfront costs of buying a home — especially if you're a first-time homebuyer. The money you then save on the down payment can be used to help pay the closing costs.

You could also negotiate with the seller. This might not be effective if you're trying to buy an attractive property in a hot real estate market, but if there isn't much competition or the property has been lingering on the market for a while, the seller might be willing to work with you. They could agree to take on more closing costs for you or lower the price, which also would result in lower upfront expenses.

Consider a smaller down payment

Another way to cover closing costs when they begin to look unaffordable is to lower your down payment. For example, if you're planning to put 5% down on a conventional mortgage, you might be able to reduce the amount to 3%. This way, you'll have more cash to use for closing costs. That said, taking this step will lead to a higher mortgage principal, meaning you'll pay more over the life of the loan.

Roll the closing costs into the mortgage

Finally, you could consider a no-closing-cost mortgage. Despite its name, this type of mortgage doesn't come without closing costs — it simply has them rolled into the loan principle or added to the interest rate. While this move can make the mortgage more expensive in the long run, you also could later refinance the mortgage into one with better rates and terms.

Closing costs can be surprisingly expensive, which makes them all the more important to account for in your budget. While you might be able to reduce these expenses or even have them rolled into your mortgage loan, the best approach is to save enough money to fully cover them.

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