Closing Costs
Fees and expenses paid by the buyer and/or seller at the closing of a real estate transaction, in addition to the property's purchase price.
Full Definition
Closing costs are the fees, taxes, and expenses that must be paid at the closing of a real estate transaction, over and above the property's purchase price. Buyer closing costs typically include: loan origination fees, appraisal fee, title insurance (lender's policy), title search fee, escrow/attorney fees, recording fees, prepaid interest, property tax proration, and homeowner's insurance prepayment. Seller closing costs typically include: real estate commissions, owner's title insurance policy, transfer taxes, payoff of existing liens, and any agreed-upon repairs or credits. RESPA requires lenders to provide buyers with a Loan Estimate within 3 business days of application and a Closing Disclosure 3 business days before closing.
Real-World Example
A buyer purchasing a $400,000 home might pay $8,000–$16,000 in closing costs (2–4% of purchase price), including origination fees, appraisal, title insurance, and prepaid taxes.
How Closing Costs Appears on the Real Estate Exam
Common question types, tested concepts, and what to watch out for
Know common buyer vs. seller costs. RESPA governs disclosure of closing costs. The Closing Disclosure replaced the HUD-1 for most transactions. Transfer taxes are typically a seller cost but vary by state/local custom.
Related Terms
More Closing & Settlement Terms
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