Closing Costs 101: What Are They and Who Pays for Them?

So, you’ve found your dream home—congratulations! But before you pop the champagne and pick out furniture, there’s one final step: closing on your home.

One of the biggest surprises for many buyers is closing costs—the various fees required to finalize your home purchase. But don’t worry! We’re here to break down what they are, how much they cost, and who typically pays for them so you can be prepared when closing day arrives.

What Are Closing Costs?

Simply put, closing costs are the fees and expenses you pay when you finalize your home purchase. These costs cover everything from loan processing and title insurance to appraisals and property taxes.

Closing costs aren’t included in your home’s purchase price, so you’ll need to budget for them separately.

How Much Are Closing Costs?

On average, closing costs range from 2% to 5% of the home’s purchase price. Here’s an example:

• Home Price: $400,000
• Estimated Closing Costs (2%-5%): $8,000 - $20,000

The exact amount varies based on your lender, loan type, and location. Some fees are fixed, while others depend on the size of your loan.

What’s Included in Closing Costs?

Closing costs include a mix of lender fees, government fees, and third-party charges. Here’s a breakdown of some common costs:

Lender Fees

Loan Origination Fee – Charged by the lender to process your loan

Discount Points – Optional fees to lower your interest rate

Appraisal Fee – Pays for a professional appraisal of the home’s value

Government & Legal Fees

Title Search & Title Insurance – Ensures no one else has a claim on the home

Recording Fees – Covers the cost of filing the deed with the county

Transfer Taxes – Some states charge taxes when a property is sold

Prepaid Costs & Escrows

Property Taxes – You may need to prepay property taxes at closing

Homeowners Insurance – Lenders require the first year’s premium upfront

Escrow Deposit – Some lenders require a deposit for future tax and insurance payments

Who Pays Closing Costs? Buyer or Seller?

Both buyers and sellers have closing costs! Here’s a quick breakdown of who typically pays for what:

Buyer’s Closing Costs

Lender fees (loan origination, appraisal, credit report)

Title insurance (lender’s policy)

Homeowners insurance & property taxes

Escrow & prepaid interest

Seller’s Closing Costs

Real estate agent commissions (usually 5%-6% of the home price)

Title insurance (owner’s policy)

Transfer taxes & recording fees

Any agreed-upon seller concessions

Can American Legend help pay closing costs? We offer incentives in certain communities that can be used to cover closing costs! Ask your sales associate about any current incentives in their community!

How to Lower Your Closing Costs

Looking to save money on closing costs? Here are some tips

Shop around for lenders – Compare loan offers to find lower fees

 Look for builder incentives – Ask your sales associate about any current incentives in their community

Check for first-time homebuyer programs – You may qualify for assistance

Be Prepared for Closing Day!

Understanding closing costs helps you avoid last-minute surprises and budget properly for your new home. While they may seem like extra expenses, they’re a necessary step in securing your dream home!

At American Legend Homes, we’re here to help you navigate every step of the home-buying process. Whether you're looking for a move-in ready spec home or building your dream home from the ground up, we’ve got you covered.

Have questions? Contact us today or visit one of our model homes to start your journey!