Mortgage Closing Costs Soared in 2021. Here's the Average

Borrowers are paying more money these days to finalize their home loans.

Getting a mortgage doesn't just mean bringing funds to the table for a down payment. It also means paying closing costs.

Closing costs are the various fees mortgage lenders charge to finalize a home loan, and they apply to new purchase mortgages as well as loans that are refinanced. Closing costs can vary by lender, and they're meant to cover costs like title insurance, recording fees, and other administrative aspects of originating a loan. This year, closing costs have gotten more expensive for borrowers.

Closing costs have jumped

During the first half of 2021, average closing costs for a mortgage on a single-family home (including prepaid property taxes) came to $6,837, according to ClosingCorp, a provider of real estate closing data. That represents an increase of 12.3% from the previous year. Without prepaid property taxes, closing costs averaged $3,836, representing a 10.5% year-over-year increase.

Clearly, property taxes have lent to a higher uptick in closing costs. The reason? Property taxes are calculated by taking a home's assessed value and multiplying it by its local tax rate. When home values climb, property taxes tend to follow suit (though they can also rise during periods when homes lose value). Since home values are up on a national level, it's easy to see why property taxes have increased -- and why closing costs are higher as a result.

How borrowers can cope with higher closing costs

If you're buying a home or refinancing a mortgage, closing costs are unavoidable. But there are steps you can take to make yours more manageable.

First, know that you generally do not have to pay your closing costs up front. If coming up with that extra money at closing is a hardship, you can almost always arrange to have your closing costs rolled into your mortgage so you can pay them off over time. Be aware that in doing so, you'll then pay interest on your closing costs. But in the context of what could be a multi-hundred-thousand-dollar loan, that may not exactly be a deal breaker.

Another thing you should know is that some closing costs are negotiable, so it's worth asking your lender if there's any wiggle room at play.

Property taxes are one element of closing costs that aren't negotiable. Lenders don't determine property taxes; they are imposed by municipalities, and lenders are obligated to make sure they're prepaid in the course of giving out home loans. Similarly, recording fees to enter a mortgage into public record aren't set by lenders and generally can't be negotiated.

But loan origination and application fees are dictated by lenders directly. A lender that wants to win your business may agree to come down on those. Furthermore, when you're buying a home, your closing costs will generally include a home appraisal fee. Some lenders will let you get your own appraisal, and if you can find a more affordable one, there may be some savings to reap there as well.

For the most part, though, it's a good idea to assume your closing costs will total anywhere from 2% to 5% of your home's purchase price or value. It's wise to figure out how you'll be handling those fees before the time comes to finalize your loan. If you'll be rolling them into your mortgage, you won't have to fork over the money up front. If you do intend to pay them at the time of your closing, be sure to budget accordingly.