What Are Closing Costs in New Construction?

Closing costs are fees paid at closing on top of the home's purchase price. In new construction, they typically total 2-5% of the purchase price and may include additional builder-specific fees.

The Short Answer

Closing costs are the fees and expenses you pay when the home purchase is finalized. They cover services like title insurance, appraisal, loan origination, recording fees, and property taxes.

For new construction, closing costs may include additional items not found in a resale transaction, such as builder fees, HOA transfer fees, and utility connection charges.

Common Closing Costs in New Construction

Loan origination fee (0.5-1% of loan amount), title insurance and title search, appraisal fee, recording fees, property tax proration, homeowner's insurance premium, HOA fees and transfer fees, and prepaid interest.

Builder-specific costs may include utility connection fees, impact fees, special assessment prorations, and builder administrative fees.

Builder Closing Cost Credits

Many builders offer closing cost credits, especially when you use their preferred lender. These credits can range from $5,000 to $20,000 or more.

A closing cost credit reduces your out-of-pocket costs at closing but does not reduce the purchase price of the home. This distinction can affect your property taxes and future equity.

Make sure you understand whether a closing cost credit is applied as a credit on the settlement statement or as a price reduction.

How to Estimate Your Costs

Ask your lender for a Loan Estimate within three days of applying for a mortgage. This document itemizes your estimated closing costs.

Ask the builder for a list of any builder-specific fees that may not appear on the Loan Estimate.

Budget 2-5% of the purchase price for total closing costs, minus any closing cost credits from the builder.

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