Closing Costs by State: What Buyers Really Pay at the Table

I had this moment, a couple of years back, when I was helping my sister review her closing disclosure. She had budgeted for closing costs of about eight thousand based on something she read online. The actual bill came in at fifteen thousand two hundred. She was buying in Washington DC, which I did not know at the time charges some of the highest transfer taxes in the country. The whole thing could have been avoided with ten minutes of research.

Closing costs vary wildly from one state to another. The national average sits somewhere around three to five percent of the home price, but that masks huge differences. Delaware buyers pay nearly three percent. Missouri buyers pay closer to one percent. Same loan, same credit, totally different cash needed at closing.

What closing costs actually include

Before I get into the state by state stuff, let me quickly list what shows up on a closing disclosure. Not all of these apply to every buyer.

Loan origination fees from the lender. Usually 0.5 to one percent of the loan. Appraisal fee, around 500 dollars. Credit report fee, roughly 30 dollars. Title search, 200 to 400. Title insurance, both a lender's policy and sometimes an owner's policy. Recording fees paid to the county. Transfer taxes, the big state level variable. Attorney fees, in states where attorneys are required. Prepaid property taxes and insurance, going into escrow. Prepaid interest for the days between closing and the first full month.

Some of these are fixed. Some are percentage based. The percentage ones are where state differences really matter.

Transfer taxes drive most of the gap

Transfer tax is a fee the state charges when a property changes hands. In some states, nobody charges it. In others, it eats up thousands.

States with no state transfer tax: Alaska, Arizona (just a two dollar fee), Idaho, Indiana, Kansas, Louisiana, Mississippi, Missouri, Montana, New Mexico, North Dakota, Oregon (except Washington County), Texas, Utah, Wyoming.

If you buy in any of these, your closing costs are already lower by whatever one percent of the sale price would have been. Texas is a great example. The property taxes are high there, but closing costs are low because no transfer tax applies.

High transfer tax states: Delaware tops the list at around four percent combined. Washington DC runs almost three percent. Pennsylvania can hit two to four percent in Philadelphia specifically, where there is a hefty city add on. New York has a mansion tax that kicks in at one million dollars and ramps up to 3.9 percent on luxury properties. Washington state uses a sliding scale that starts at 1.1 percent and goes up.

Attorney required states add fees

Twenty two states require an attorney to conduct the closing or to be present. In most of these, the attorney fee lands between 500 and 1500 dollars. These states include Alabama, Connecticut, Delaware, Florida (in some counties), Georgia (attorneys handle title), Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, West Virginia, and a few others.

In the rest of the country, you can close with a title company or escrow agent. No attorney needed, no attorney fee.

Who pays what

Here is where state customs matter. Transfer taxes are usually paid by the seller in most of the country, but there are states where the buyer pays, or where the two sides split it.

In California the seller customarily covers the transfer tax. In New York the seller pays state transfer tax, but a buyer paying over a million triggers the mansion tax, which the buyer handles. Vermont flips the typical setup, buyers pay the transfer tax, and non primary residences pay the higher 2.5 percent rate under Act 181.

When you make an offer, your real estate agent should walk you through the local custom. These are negotiable in a slow market. In a hot market, sellers often refuse to budge.

Title insurance is weirder than you think

Title insurance protects you against someone showing up later claiming they own part of your house. Think forgotten heir, old lien, surveyor error. You pay once at closing and it covers you for as long as you own the place.

The weird part is pricing. In some states like Texas, New Mexico, and Florida, the state sets the rates and every title company charges the same. In other states, prices vary and you can shop around. Iowa does something unique with a state run title guaranty program that is often cheaper than private insurance.

For a 400,000 dollar house, title insurance usually runs between 1,000 and 2,500. Owner's policy is optional in most places but highly recommended. Lender's policy is required if you have a loan.

Rough budgets to plan for

Low cost state like Wyoming or Missouri: budget 2.5 percent of the purchase price for closing costs.

Average state like Ohio or North Carolina: budget 3 to 4 percent.

High cost state like Delaware or New York: budget 5 to 6 percent, more if the house is over a million.

Add escrow prepaids on top of this for property taxes and insurance, which can be another one to two percent depending on when in the year you close.

The thing I wish my sister had known

Ask your lender for a loan estimate within three business days of applying. It is required by federal law. The estimate lists every expected closing cost. You can shop around on specific line items, especially title insurance in unregulated states.

Also, in slow markets, sellers will sometimes agree to cover part of your closing costs as a concession. On a conventional loan with less than ten percent down, sellers can contribute up to three percent. Ask your agent to write that into the offer. Worst case the seller says no. Best case you save five thousand bucks.

My sister still rolls her eyes when I mention closing costs. But she now checks the transfer tax rate before she even looks at listings in a new state.