December 11, 2025 - Sonic Loans

What Are Closing Costs and How Much Should You Expect?

Buying or refinancing a home is exciting, but one part of the process often surprises buyers: closing costs. Many people budget for a down payment but forget that closing costs can add up quickly. Understanding what closing costs are and how much you should expect can help you prepare financially and avoid last-minute stress when it’s time to finalize your home purchase.

In this guide, we’ll break down what closing costs include, how much they typically cost, and smart ways to plan ahead.

What Are Closing Costs?

Closing costs are the fees and expenses you pay to complete a real estate transaction. These costs cover the services required to legally transfer ownership of a property from the seller to the buyer. They are paid at “closing,” the final meeting when all paperwork is signed, and the home officially becomes yours.

These fees go to lenders, title companies, attorneys, appraisers, and local governments to process and protect the transaction. Closing costs are separate from your down payment and are usually paid up front rather than rolled into your mortgage (though some loans allow rolling them in under certain conditions).

What Do Closing Costs Include?

Closing costs vary by state, city, and loan type, but they typically include several standard fees such as:

Loan-related fees:
These are charged by your lender and may include the loan origination fee, application fee, underwriting fee, and processing fee.

Appraisal fee:
Your lender requires an appraisal to verify the home’s value. This ensures the property is worth what you’re borrowing.

Home inspection fee:
While not always required by the lender, a home inspection is highly recommended to identify potential issues before closing.

Title services:
These include the title search and title insurance. A title search ensures the property has no legal claims or liens, while title insurance protects you and the lender from ownership disputes.

Government fees:
These include recording fees, transfer taxes, and other local government charges to update ownership records.

Prepaid costs:
These are not technically fees but advance payments for items such as homeowners’ insurance, property taxes, and prepaid mortgage interest.

How Much Are Closing Costs Typically?

Closing costs generally range from 2% to 5% of the home’s purchase price. The exact amount depends on several factors, including your location, loan type, and transaction complexity.

Here are some examples:

On a $200,000 home: You may pay between $4,000 and $10,000 in closing costs.
On a $300,000 home: Expect around $6,000 to $15,000.
For a $400,000 home, costs can range from $8,000 to $20,000.

States with higher property values, attorney requirements, or transfer taxes tend to have higher closing costs. Some buyers are surprised to learn that lenders must provide an official Loan Estimate early in the process so you can review expected closing costs before moving forward.

Who Pays Closing Costs?

Both buyers and sellers typically pay closing costs, but they cover different types of fees.

Buyers usually pay for:

Lender fees
Appraisal and inspection
Credit report and underwriting
Title insurance (lender’s policy)
Prepaid taxes and insurance

Sellers typically pay for:

Real estate agent commissions
Owner’s title insurance (in many states)
Transfer taxes (depending on location)

The exact responsibility can vary based on local customs and what’s negotiated in the purchase agreement.

Can You Reduce or Avoid Closing Costs?

While you can’t eliminate closing costs entirely, there are several ways to reduce them:

You can shop around for lenders to compare fees. Some lenders charge higher origination or underwriting fees than others, and comparing Loan Estimates can save you money.

You can also negotiate with the seller to ask for seller concessions. In some markets, sellers may agree to cover part of your closing costs to help close the deal.

Another option is a lender credit, where the lender covers part of your closing costs in exchange for a slightly higher interest rate.

Finally, reviewing your Loan Estimate carefully can help you spot errors or unnecessary fees before closing day.

What Is a Closing Disclosure?

A Closing Disclosure is the final document that details all of your loan terms and closing costs. Lenders are required to provide this at least three business days before closing, giving you time to review every charge and compare it to your original Loan Estimate.

You should review this document carefully and ask questions about any fees you don’t understand.

Are Closing Costs Different for Refinancing?

Yes, closing costs for a refinance are similar but often slightly lower than those for a purchase. Refinancing typically involves appraisal, title, and lender fees, but without some of the costs associated with property transfer.

Refinance closing costs usually range from 2% to 3% of the loan amount rather than the purchase price.

Why Understanding Closing Costs Matters

Closing costs are a critical part of the home-buying process because they directly affect how much cash you need upfront. Being aware of these costs early can help you avoid surprises, plan your savings, and move confidently through the home purchase process.

When you understand what to expect, you can budget properly, negotiate smarter, and make sure you’re financially prepared for one of the biggest investments of your life.

Final Thoughts

Closing costs are more than just small administrative fees—they represent the essential services and protections that make your real estate transaction legal and secure. Expect to budget around 2% to 5% of your home’s purchase price, and always review your Loan Estimate and Closing Disclosure carefully.

With the right preparation, closing costs become just another manageable step toward homeownership.

Thank you for reading! If you enjoyed this article and want to explore more content on similar topics, check out our other blogs at Sonic Loans, Sonic Realty, and Sonic Title. We have a wealth of information designed to help you navigate the world of real estate and finance. Happy reading!

Are you looking for the right loan? Check out Sonic Loans for tailored mortgage solutions that make home financing simple and efficient.

December 11, 2025