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Closing costs are the amount you’ll need on top of your down payment to buy a house.
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The average closing costs in 2021 were $3,860 without transfer taxes, according to ClosingCorp data.
When including transfer taxes, that amount increased to $6,905.
These costs cover underwriting, title search, and loan fees, and are on top of the down payment.
The average closing costs required to buy a home in the US in 2021 were $6,905 including transfer taxes, and $3,860 excluding transfer taxes, according to data from mortgage technology company ClosingCorp.
Transfer taxes are a tax that some state or local governments charge when ownership of a property is transferred from one person to another. The buyer or the seller may pay this cost, depending on where you live.
What are closing costs?
Closing costs are a major expense to consider when shopping for a mortgage, or considering buying a house. Your closing costs can add significantly to the amount you need to buy a home, and are an expense that’s separate from your down payment.
It is possible to get a loan without closing costs, but often, the costs roll into the life of the loan. You may find that a loan with lower or no closing costs has a higher interest rate, which could make costs higher than simply paying up front. A lender could also add closing costs to the loan’s principal, which increases the total amount you’ll pay interest on.
Average closing costs by state
ClosingCorp averaged data from 4.4 million single-family home purchase transactions in 2021 and calculated the average amount buyers paid in closing costs.
Where you live will have a significant impact on what you’ll owe to close on your house. According to the data, buyers in Washington, DC paid about $29,888 in closing costs with transfer taxes, while the average Missouri buyer spent $2,061 with transfer taxes.
Here are the average closing costs by state, both with and without transfer taxes owed at closing.
StateAverage closing costs with taxesAverage closing costs without taxesAlabama
$2,986
$2,623
Alaska
$3,581
$3,581
Arizona
$4,701
$4,701
Arkansas
$3,115
$2,281
California
$7,953
$5,665
Colorado
$3,881
$3,806
Connecticut
$8,821
$4,108
Delaware
$17,859
$3,888
Florida
$8,554
$4,498
Georgia
$3,762
$2,863
Hawaii
$7,463
$5,879
Idaho
$4,082
$4,082
Illinois
$5,929
$4,733
Indiana
$2,200
$2,200
Iowa
$3,146
$2,741
Kansas
$2,793
$2,793
Kentucky
$2,802
$2,546
Louisiana
$3,711
$3,386
Maine
$4,420
$2,864
Maryland
$14,721
$4,459
Massachusetts
$7,964
$4,904
Michigan
$5,714
$3,511
Minnesota
$4,011
$2,592
Mississippi
$2,756
$2,756
Missouri
$2,061
$2,061
Montana
$3,337
$3,337
Nebraska
$2,781
$2,210
Nevada
$6,383
$4,222
New Hampshire
$8,183
$2,804
New Jersey
$7,915
$4,158
New Mexico
$3,513
$3,513
New York
$16,849
$6,168
North Carolina
$3,406
$2,642
North Dakota
$2,501
$2,501
Ohio
$4,223
$3,346
Oklahoma
$2,893
$2,507
Oregon
$4,327
$3,862
Pennsylvania
$10,634
$4,221
Rhode Island
$5,568
$3,419
South Carolina
$3,447
$2,501
South Dakota
$3,105
$2,843
Tennessee
$3,911
$2,694
Texas
$4,548
$4,548
Utah
$4,837
$4,837
Vermont
$7,906
$3,500
Virginia
$6,346
$3,461
Washington
$13,927
$4,862
Washington, DC
$29,888
$6,502
West Virginia
$3,406
$2,465
Wisconsin
$3,459
$2,692
Wyoming
$2,589
$2,589
Closing costs vary slightly between states. Transfer taxes are a big factor, especially in states with high transfer taxes. The amount you’ll pay at closing will largely depend on your state’s real estate transfer tax rate.
What fees are included in closing costs?
Closing costs are paid to some of the entities that help you complete the homebuying process and close on your home. Here are some of the typical costs you can expect to pay, according to the Federal Reserve.
Application fee
Typical cost: $75 to $300
Lenders charge this fee to cover the costs of processing a loan application and checking your credit.
Loan origination fee
Typical cost: 0% to 1.5% of the loan amount
This fee covers the lender’s costs of underwriting and preparing your mortgage.
Prepaid interest
Typical cost: Varies based on the number of days between your closing and when your loan starts, as well as the loan amount and your interest rate.
You’ll have to pay interest for the time between when your first payment starts and you close on the mortgage.
Title search and insurance
Typical cost: $700 to $900
Lenders have a title company run a search on the home’s title in order to verify that the seller is the property owner and that the title doesn’t have any liens on it. Lenders typically require borrowers to purchase a lender’s title insurance policy as well, which protects the lender in the event that title issues come up later on. If you want this protection for yourself, you’ll also need to purchase an owner’s title insurance policy.
Appraisal fee
Typical cost: $300 to $700
An appraisal helps to assure the bank that the home is worth at least the amount of the loan.
Settlement or closing fees, recording fees, or lawyer’s fees
Typical cost: $500 to $1,000
These fees are paid to the lawyer who manages the closing for the lender.
Land surveys
Typical cost: $150 to $400
Surveys make sure that all buildings are where they’re supposed to be, and to record any locations of changes or improvements. This may not be required if a recent survey is available.
Property taxes
Typical cost: Varies
Property taxes for the home you’re buying may also be due at closing. The amount you’ll owe will be prorated to cover the taxes you’re responsible for that the seller has already paid for the year.
Additional fees paid for specific loan types
Private mortgage insurance: If you’re getting a conventional loan with a down payment that’s less than 20% of the home’s purchase price, you’ll owe private mortgage insurance, or PMI. The first payment is typically due at closing, and is generally between 0.5% to 1.5% of the loan amount.Fees for FHA, VA and USDA loans: If you’re planning to use a loan backed by the Federal Housing Administration (FHA), Veterans Administration (VA), or US Department of Agriculture (USDA), you may have to to pay a fee at closing.FHA: 1.75% of the loan amountVA: Between 1.4% and 3.6% of the loan amountUSDA: 1% of the loan amountHomeowners insurance: If your mortgage includes an escrow account, you could be required to pay for the costs of homeowners insurance to your lender at closing.
How to reduce closing costs
There are a number of closing costs that you can negotiate. These include fees for everything from your mortgage application to home inspections, appraisals, title searches, and other costs involved in the homebuying process.
You may also be able to roll some or all of your closing costs into your mortgage principal. However, while this strategy will keep some money in your pocket at the outset, it will cost you more in the long run because you’ll pay interest on costs rolled into your mortgage principal. Be sure you’re willing to make higher monthly payments for years in exchange for lower closing costs.