Introduction
When budgeting for a home purchase in the United States, many buyers focus primarily on the down payment and underestimate closing costs—the additional fees and charges paid at or near settlement. These costs can represent a significant upfront expense beyond the purchase price of the home.
According to the Consumer Financial Protection Bureau (CFPB), the median total loan cost for home purchase loans was $5,954 in 2022, reflecting a 22% increase from 2021. The CFPB also reported that 50.2% of borrowers paid discount points, with a median cost of $2,370 when points were used. These figures illustrate that closing costs vary widely across borrowers, lenders, and markets and are an important component of overall homebuying costs.
This article explains what closing costs typically include, why they vary, and how buyers commonly review and compare them using standardized disclosures.
What Are Closing Costs? (U.S. Context)
In the United States, closing costs refer to fees and expenses paid in addition to the home’s purchase price and down payment at or just before settlement. These costs are typically itemized on standardized disclosure forms provided by lenders.
Common categories include:
1) Lender-Related Fees
- Loan origination fees
- Underwriting fees
- Processing or administrative fees
- Credit report charges
- Appraisal fees
2) Title and Escrow Fees
- Title search
- Title insurance
- Escrow or settlement services
- Recording fees
3) Government Fees and Taxes
- Transfer taxes (where applicable)
- County or municipal recording fees
4) Prepaid Items and Insurance
- Homeowners insurance premiums (often prepaid)
- Property tax escrow deposits
- Mortgage insurance (if applicable)
5) Optional or Situational Costs
- Discount points
- Attorney fees (in some states)
- Survey fees
How Much Buyers Commonly Pay — U.S. Data
Based on CFPB data:
- The median total loan cost for home purchase loans was $5,954 in 2022, up 22% from the prior year.
- More than half of borrowers (50.2%) paid discount points, with a median cost of $2,370 among those who did.
These figures suggest that closing costs, particularly when discount points are included, may range from several thousand dollars to significantly higher amounts depending on the transaction.
Why this matters: Closing costs are paid in addition to the down payment and may not be fully reflected in early affordability estimates if buyers focus only on purchase price.
Why Closing Costs Vary
Closing costs are not uniform and may differ based on several factors:
1) Loan Type
Different loan programs (such as conventional, FHA, VA, or USDA loans) may have different fee structures and limitations. Some government-backed programs restrict certain lender charges, which can affect overall costs.
2) State and Local Requirements
Recording fees, transfer taxes, and settlement practices vary by state and local jurisdiction. In some areas, state or municipal taxes can represent a notable portion of total closing costs.
3) Lender Practices
Lender-specific fees for processing, underwriting, or administration may vary even for similar loan scenarios.
4) Discount Points
Discount points represent prepaid interest that may be used to adjust loan pricing. While optional, CFPB data shows that many borrowers choose to pay points, which can increase upfront costs.
Typical Closing Cost Components Explained
Lender Fees
These fees relate to loan processing and risk evaluation. Common examples include:
- Origination fees: Often expressed as a percentage of the loan amount
- Appraisal fees: Frequently ranging between $450 and $700, depending on property type and location
- Credit report fees: Commonly between $50 and $90
Title and Settlement Services
Title insurance protects against certain ownership and title defects. Escrow or settlement services coordinate document execution, fund disbursement, and recording.
Prepaid Items and Escrow Funding
At closing, lenders may collect estimated upfront amounts for:
- Property taxes
- Homeowners insurance
- Mortgage insurance (when applicable)
If an escrow account is required, an initial deposit is typically collected at settlement.
Illustrative Example: Closing Cost Breakdown
For illustrative purposes only, consider a hypothetical purchase of a $350,000 home with a 20% down payment using conventional financing:
| Component | Estimated Amount |
| Loan origination | $1,750 |
| Appraisal | $500 |
| Title insurance | $1,200 |
| Escrow/settlement | $700 |
| Prepaid insurance and taxes | $2,000 |
| Recording fees | $250 |
| Estimated total | ~$6,400 |
This example is illustrative and does not represent a quote or offer. Actual costs vary by lender, location, and transaction details.
How Buyers Commonly Compare Closing Costs
The CFPB encourages buyers to request multiple Loan Estimates for the same purchase scenario. The Loan Estimate is a standardized disclosure that allows borrowers to compare:
- Interest rate information
- Origination charges
- Discount points
- Title and settlement fees
- Prepaid and escrow deposits
Reviewing multiple Loan Estimates is a commonly used method for understanding and comparing closing costs.
Educational Considerations
Looking Beyond the Interest Rate
Comparing mortgage options often involves reviewing total costs—including fees and prepaid items—rather than focusing on the interest rate alone.
Reviewing Line Items
Understanding each fee listed on a Loan Estimate can help clarify which costs are lender-specific and which are driven by location or loan structure.
Planning for Settlement Timing
Closing costs are typically paid at settlement, which commonly occurs 30 to 45 days after contract execution. Buyers often plan cash reserves accordingly.
AUTHOR INFORMATION
Written by:
Beenish Rida Habib — Mortgage & Lending Contributor, ACT Global Media
Beenish Rida Habib is a Florida-licensed Mortgage Loan Originator with licensing since 2018. She contributes educational content explaining U.S. residential mortgage concepts and lending terminology.
Editorial Disclosure
This article is provided for general informational purposes only and does not constitute mortgage, credit, financial, legal, or real estate advice.
Regulatory Notice
Content is based on publicly available U.S. sources. Mortgage programs, terms, fees, and eligibility vary by lender, borrower qualifications, location, and applicable laws and regulations.
