What are closing costs?

Closing costs typically run 2% to 5% of your home's purchase price. That's $4,000 to $10,000 on a $200,000 home.

When you understand what you're paying for (and what's negotiable), these fees become far less intimidating. Let's break down where your money goes.

Lender fees

These cover the work your lender does to process and approve your mortgage:

• Origination fee: Typically, 0.5% to 1% of the loan amount, this covers loan processing and underwriting

• Application fee: Administrative costs for processing your mortgage application

• Underwriting fee: Covers the lender's cost to verify your financial information and approve the loan

• Discount points: Optional upfront payment to lower your interest rate

• Not all lenders itemize these fees separately. Some bundle them into an origination charge.

Title and escrow fees

These ensure the property legally transfers to you without issues:

• Title search: Confirms the seller legally owns the property and there are no outstanding claims

• Title insurance: Protects you and the lender if ownership issues surface after closing

• Escrow fee: Covers the neutral third party that handles funds and documents during closing

• Recording fees: Government charges to officially record the property transfer

Property-related charges

These fees assess the property's condition and value:

• Appraisal fee: Usually $300 to $500, confirms the home's market value for the lender

• Home inspection: Typically $300 to $600, identifies potential issues with the property (optional but recommended)

• Survey fee: Verifies property boundaries (required in some areas)

• Appraisal and inspection costs can be higher in high‑cost or rural areas.

Prepaid items and escrow

You'll pay some costs upfront that cover future expenses:

• Property taxes: Pro-rated amount covering taxes from closing until the end of the tax period

• Homeowners insurance: First year's premium, often due at closing

• Mortgage interest: Covers interest that accrues between closing and your first payment

• HOA fees: Pro-rated homeowners association dues if applicable

Government fees and taxes

These vary significantly by location:

• Transfer taxes: State or local taxes on property transfers

• Recording fees: Charges to file the deed and mortgage with local government

Both buyers and sellers pay closing costs, but they cover different expenses.

Buyers typically pay:

• Lender fees, including origination, underwriting, and application

• Lender's title insurance

• Appraisal and inspection fees

• Prepaid property taxes and insurance

• Recording fees

Sellers typically pay:

• Real estate agent commissions

• Transfer taxes (depending on state and local custom)

• Owner's title insurance (depending on state and local custom)

• Outstanding liens or judgments on the property

In some cases, you can negotiate seller concessions where the seller covers part of your closing costs. This works best in buyer markets when sellers are motivated to close the deal.

Yes, you can write off some closing costs on your taxes, but not all of them.

The IRS lets you deduct certain closing costs that fall into the "interest and taxes" category: things like prepaid property taxes, mortgage points (also called discount points), and prepaid mortgage interest. If you paid points to lower your interest rate, you may be able to deduct them in the year you purchased your home if IRS requirements are met. Otherwise, they may need to be deducted over the life of the loan.

But the bulk of your closing costs (appraisals, inspections, title insurance, attorney fees, and HOA charges) aren't deductible. Think of these as the cost of doing business when you buy a house, not ongoing expenses the IRS rewards.

What costs can typically be deducted?

Mortgage points: If you paid points to lower your interest rate, you can usually deduct them in the year you purchased your home, as long as the loan is for your primary residence and you meet IRS requirements.

Prepaid property taxes: Property taxes you pay at closing for the current tax year are deductible. Just remember, your lender might also collect taxes through escrow going forward, so keep track to avoid double-counting.

Prepaid mortgage interest: The interest you pay upfront to cover the period between closing and your first mortgage payment is deductible.

While you can't eliminate closing costs, you can lower them:

Shop around. You can shop for title insurance and home inspections independently. Compare prices from multiple providers.

Negotiate seller concessions. Ask the seller to cover a portion of your closing costs, especially in a buyer's market.

Ask about lender credits. Some lenders offer credits toward closing costs in exchange for a slightly higher interest rate.

Close at the end of the month. You'll pay less in prepaid interest if you close near your first payment due date.

Review your Loan Estimate carefully. Question any fees that seem excessive or unclear.

Closing costs are part of every home purchase, but they don't have to derail your budget. When you know what to expect and where you have leverage, you can navigate closing day with confidence instead of confusion.

At Axos, we believe in transparent pricing and a streamlined digital mortgage process that eliminates surprises.

Our team provides clear Loan Estimates upfront, so you understand every line item before you commit. Clear, upfront Loan Estimates with no unexpected fees at closing. No confusion. Just straightforward guidance from application to closing.

Ready to see what your mortgage and closing costs would actually look like?

Get Pre-Qualified or call 888-546-2634.