What closing costs include
Buyer closing costs usually add up to 2–5% of the purchase price. They include lender fees (origination, points, underwriting), title insurance and escrow fees, appraisal and inspection, recording fees, transfer taxes where the buyer pays them, and prepaid items like the first year of insurance and a few months of property tax held in escrow.
Example
On a $300,000 purchase with 20% down, 1% lender fees on the $240,000 loan come to $2,400. Add $2,500 for title and escrow, $1,100 for appraisal and inspection, $1,500 in transfer taxes, $3,000 of prepaids and $1,000 of other fees: about $11,500, or 3.8% of the price. Cash to close is the $60,000 down payment plus closing costs, around $71,500.
Transfer taxes vary by state
Some states charge nothing, others over 1%, and who pays depends on local custom and your contract. Check the rate for the county where the property is.
Common questions
Can the seller pay my closing costs?
Yes, through seller concessions or credits, which you negotiate as part of the offer. Lenders limit how much the seller can contribute.
Are closing costs tax deductible?
Some are, and on rental property many are added to your cost basis. Ask a tax professional about your situation.