Closing costs are the fees and prepaid expenses required to finalize a real estate purchase, and they typically add 2 to 5% of the purchase price to a buyer's total outlay. On a $400,000 home, that means $8,000 to $20,000 due at closing in addition to the down payment. Lenders are required by law to provide a Loan Estimate within three business days of application, itemizing every projected cost so buyers can shop and compare before committing to a lender.
What buyers pay at closing
Buyer costs include the loan origination fee (typically 0.5 to 1% of the loan amount), appraisal ($500 to $900), title search and title insurance for the lender, home inspection, prepaid homeowners insurance, and prepaid property taxes. Many buyers also pay points to buy down their interest rate, with one point equaling 1% of the loan amount and reducing the rate by approximately 0.25%. Whether buying down the rate makes sense depends on how long you plan to keep the loan.
What sellers pay and how to negotiate
Sellers typically pay real estate commissions, which are now negotiated more openly following the 2024 NAR settlement, plus transfer taxes that vary by state from 0.01% in Colorado to 4% in Pittsburgh. Title search fees, any required repairs from the buyer inspection, and prorated property taxes round out the seller side. In slower markets, sellers sometimes offer to cover a portion of the buyer closing costs as a concession, effectively reducing the buyer cash needed to close without officially dropping the list price.
