Closing Costs: A Look What They Are and What State Has the Highest Fees

There’s a lot that goes into buying a house — after all, it’s likely the largest purchase you’ll make in your lifetime. Most people these days know their way around a mortgage calculator, understand that they should have at least 20% of the home’s purchase price ready for a down payment, and realize the other costs that go along with homeownership such as insurance and property tax. That’s why it’s so surprising that closing costs can often slip the minds of homebuyers. Further complicating things, closing costs can vary greatly depending on where you live. 

Let’s take a look at closing costs and where in the country they tend to be the most expensive.

What are closing costs?

There’s a reason that the “costs” in closing costs is pluralized. That’s because there are a number of different fees that go into what are considered to be closing costs. This could include appraisal fees, credit report fees, home inspection costs, home warranties, loan origination fees, etc. Additionally there are also fees associated with escrow — a third party service that acts as the intermediary between the buyer and seller — that are also considered with closing costs.

Typically closing costs will add up to 3% to 6% of the home’s purchase price. Obviously that’s a pretty big range, but this closing costs calculator should help you get a better idea about the costs you’ll face. It should also be noted that in some cases the buyer can arrange for the seller to cover the closing costs but this must be agreed upon during price negotiations and included in the officially accepted offer.

Where are closing costs the highest?

As notes closing costs can vary depending on the market the home is in. A recent survey of these costs from a collection of different lender quotes found that the state with the highest average was Hawaii. There a typical $200,000 home will cost you upwards of $2,655 in closing costs assuming that you put 20% down and have excellent credit. Unfortunately this number doesn’t even include things like homeowners insurance policies, government fees, or escrow fees, which can make up one-third of your total closing costs.

Also in the top five were states that few would be surprised by (New York) as well as some you might not have thought of (both Carolinas, Deleware). On the opposite end Wisconsin, Kentucky, South Dakota and Oklahoma were among the cheapest states for closing costs. However the winner was actually Pennsylvania where the average came to $1,837. 

The bottom line

Closing costs may seem like an afterthought to many but they can add up quickly. Then again if a few thousand dollars could spoil your plans for buying a home perhaps you need to do some more serious thinking about if homeownership is right for you at this time. Regardless be sure to shop around in an effort to keep your closing costs low and plan ahead so you’ll have plenty of cash to cover them. 


Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded in 2015 to focus on personal finance and the emerging FinTech markets.

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