You’ve found the perfect home, your offer has been accepted, and settlement day is on the horizon. But before you pop the champagne, there’s one last piece of the homebuying puzzle to understand: closing costs.
Closing costs can catch buyers off guard if they’re not prepared. These fees and charges are an essential part of the mortgage process, so understanding what they include—and how to plan for them—can save you stress and money.
In this guide, we’ll walk you through what closing costs are, how much they typically cost, and how you may be able to reduce them.
What Are Closing Costs?
Closing costs refer to the range of fees and expenses associated with finalising your mortgage and transferring ownership of the property. These costs are usually paid at settlement and are in addition to your deposit and regular mortgage repayments.
They cover administrative, legal, and financial services required to complete the home purchase.
Common Types of Closing Costs
While specific costs can vary, here are the most common fees included in closing costs:
1. Lender Fees
These are charged by your lender to process your home loan. They may include:
- Loan origination fees
- Application fees
- Discount points (optional upfront payment to reduce your interest rate)
2. Title Insurance
Title insurance protects both you and the lender from disputes over ownership or legal claims against the property’s title.
- Lender’s title insurance: Required by the lender
- Owner’s title insurance: Optional but recommended for buyer protection
3. Appraisal Fees
Before final approval, your lender may require a professional valuation to confirm the property’s market value. The buyer typically pays this fee.
4. Escrow Fees
Escrow services ensure all funds and documents are held and disbursed correctly until the transaction is final. These fees cover the setup and management of the escrow account.
5. Recording Fees
Local or state government agencies charge fees to legally register the property’s title transfer and mortgage documents.
How Much Do Closing Costs Typically Cost?
Closing costs usually range between 2% and 5% of the property’s purchase price. For a $600,000 home, that’s approximately $12,000 to $30,000.
The total can vary depending on:
- The state or territory the property is in
- Your lender’s fee structure
- The type of loan product
- Whether stamp duty or other taxes apply
Some states also require additional levies, legal fees, or charges depending on the transaction type or property value.
Can You Negotiate Closing Costs?
Yes—closing costs aren’t always fixed, and there may be room to reduce or reallocate some of them. Here are a few strategies:
1. Seller Contributions
In a buyer’s market, sellers may agree to cover some or all closing costs as an incentive. This is known as a seller concession or contribution and can be negotiated during the contract phase.
2. Lender Credits
Some lenders offer credits to offset closing costs in exchange for a slightly higher interest rate. This may make sense if you plan to stay in the home for a shorter period.
3. Rolling Costs into the Loan
In some cases, lenders allow you to roll eligible closing costs into your home loan. This increases the loan balance slightly but reduces the need for upfront cash.
Always weigh the long-term impact of these options and speak with your mortgage broker or lender to determine the best fit for your financial situation.
Final Tips for Managing Closing Costs
- Request a Loan Estimate Early: Your lender is required to provide a breakdown of estimated closing costs. Review this carefully and ask questions.
- Compare Lenders: Different lenders charge different fees. Don’t just focus on the interest rate—look at the full cost of the loan.
- Work with a Trusted Agent: An experienced buyer’s agent can help negotiate seller contributions and flag excessive fees.
The Bottom Line
Closing costs are an unavoidable part of buying a home, but they don’t have to be a surprise. By understanding what’s involved, estimating the costs early, and exploring your negotiation options, you can move through the settlement process with greater clarity and confidence.