Before buying a home, it is important to research average closing costs in the state of purchase. Some closing costs, such as the ones charged by the mortgage lender, are fairly uniform across all states, while others can vary significantly. There are even closing costs that apply to purchases in some states but not others.

The following summary explains why anticipating closing costs is so important when shopping for a home. It also breaks down the methodology used by Investopedia to calculate average closing costs in each state.

Homebuyers Should Research Average Closing Costs

When shopping for a home, budgeting is a necessary part of the process. Buyers' income and other expenditures determine how much home they can afford. Another consideration is the down payment the buyer is capable of making. During free-wheeling days of mortgage lending in the 2000s, many people purchased homes with little to nothing down. That led to the housing bubble, which burst. Consequently, most lenders now require 20% down. Mortgages with lower down payments still exist but usually require borrowers to take on onerous mortgage insurance until their equity positions reach 20%.

Consequently, buyers should plan to come to closing with at least 20% of the purchase price. This price is rarely the final figure agreed upon by the buyer and seller. Almost always, closing costs must be added to this figure to determine the true price. Closing costs can be anywhere from a few hundred to several thousand dollars. If a buyer anticipates needing a down payment of $20,000, finding out he actually needs $25,000 or more could create problems.

Because most home purchases are not average, learning average closing costs does not provide a buyer with an exact figure. However, it does provide a starting figure to keep in mind when conducting further research. Moreover, identifying specific closing costs that usually apply in a given state makes it easier to research how those costs might affect a particular purchase.

Average Closing Costs - Common Factors

Calculating average closing costs involves looking at two types of closing costs, lender and nonlender costs, and determining what typical buyers pay for each. To make for easy comparison between states, Investopedia's real estate guide assumes a purchase price of $200,000 and a down payment of 20%. Buyers planning to spend more or less money or make a larger or smaller down payment can adjust their state's figures up and down accordingly.

In most states, lender costs comprise the lion's share of closing costs. Within lender costs, the origination fee tends to be the largest expense. Usually expressed as a percentage of the loan amount, this fee represents the lender's charge for its time and expertise. Other frequent lender costs include a document preparation fee and a tax services fee, though both costs are usually small.

As a percentage of the loan amount, lender fees do not vary much from state to state. Most origination fees are about 1% of the loan amount. What makes lender fees often higher in certain states, such as California and Hawaii, is that purchase prices tend to be higher in those areas.

The other type of closing costs, nonlender fees, is what differs more between states. Expenses such as the survey fee, settlement fee and appraisal fee depend to a large extent on market conditions in a given area. Further, not all of these fees, or additional common nonlender fees such as the home inspection fee, apply to all purchases in all states. Certain states have specific fees that are required, and those fees are not the same in all states.

Investopedia's real estate guide breaks down the average closing-cost scenario in each state, listing each fee a buyer can expect to find on his settlement statement and in what amount. Being familiar with these figures makes shopping for a home easier and potentially prevents nasty deal-killing surprises at the closing table.

Connecticut (CT): Average Closing Costs

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