Who Pays for Closing Costs?

Who Pays for Closing Costs?
Published On: March 9, 2022

How Much You Can Expect to Pay in Closing Costs

When you are buying a home, your down payment isn’t the only thing you have to bring to the table. There are other fees called closing costs that must be paid on top of the price of the actual home. Closing costs are a blanket term for these fees and include costs such as prorated rent and utilities, title insurance, home warranties, document preparation, and much more.

Many homebuyers underestimate just how much they will need at settlement and understanding closing costs may feel difficult or overwhelming. Not to worry! We are here to help you understand what closing costs are and who is typically expected to pay them at the time of closing.

What Are Closing Costs?

Closing costs are the fees due at closing that are above and beyond the price of the property. While each transaction is different, the bulk of closing costs is usually the responsibility of the buyer, with different fees going to the seller.

Closing costs can be negotiated though, and some sellers will pick up the costs, or a portion of the costs, for various reasons. If you are in the process of purchasing a home, talk to your real estate agent about how to negotiate who pays for closing costs – you may be able to save some money at closing!

What Closing Costs Does the Buyer Pay?

Closing costs for homebuyers add up quickly and range between 3-6% of the total purchase price including fees and taxes. If you are purchasing a home for $180,000, expect to bring an additional $5,400 to $10,800 to settlement day.

Typical closing costs for buyers include:

  • Attorney fees: Some real estate transactions require an attorney for the buyer, seller, or both.
  • Credit report fees: Your lender will likely require a credit report to qualify for your mortgage and may pass this expense on to you.
  • Loan origination fees: Loan origination fees cover the expense of processing the paperwork for your home loan.
  • Inspection fees: Prior to closing, your lender may require a home inspection before your mortgage will be approved.
  • Discount points: If you’ve opted to lower your interest rate on your loan amount with discount points, you will have to bring this fee to closing.
  • Appraisal fees: A home appraisal is required prior to closing to verify the sale price of the property is fair and justified.
  • Lender’s title insurance: Lender’s title insurance is required and protects the lender from problems with the title after closing.
  • Owner’s title insurance: Owner’s title insurance protects your ownership rights in the property. In some states, this is optional, but optional does not mean unimportant.
  • Title search fees: The title company will do a thorough background check on the title to make sure there aren’t unpaid liens on the property.
  • Escrow deposits: Most lenders will probably ask you to pre-pay several months of taxes and insurance to build up your loan’s escrow account.
  • Recording fees: These fees are paid to the city or county that records the title and deed.
  • Underwriting fees: Underwriting fees cover the cost of evaluating your mortgage loan application.
  • Prorated property tax: At the time of closing, property taxes have likely been paid. If so, then the buyer will have to compensate the seller for the months already paid in advance by the seller after the buyer took ownership (up to the end of that tax period).
  • HOA fees: Like property taxes, HOA fees have likely already been paid in full for the year. If so, then the buyer will reimburse the seller for the HOA fees already paid in advance by the seller after the buyer took ownership (up to the end of that HOA period).
  • Transfer taxes: These fees cover the cost of transferring the title with the city or county where the property is located.

What Closing Costs Does the Seller Pay?

The seller also has closing costs to bring to the table, and those, too, can add up quickly. The seller is typically tasked with paying the real estate agent’s commission which is usually 6% of the sales price.

Other costs that the seller picks up the tab on include:

  • Owner’s title insurance: Like lender’s title insurance, owner’s title insurance is designed to protect your investment just in case issues are discovered with the title after closing. In some states, this is paid by the seller. In many others, it is borne solely by the buyer.
  • Transfer taxes: These fees cover the cost of transferring the title with the city or county where the property is located.
  • Prorated property tax: At the time of closing, property taxes have likely been paid. If not, and the buyer covers the tax, then the seller will have to compensate the buyer for the months before they took ownership.
  • HOA fees: Like property taxes, HOA fees have likely already been paid in full for the year. If not, and the buyer covers the tax, then the seller will reimburse the buyer for the HOA fees before they took ownership.
  • Home warranty premiums: Many real estate transactions include a one-year home warranty so the buyers have peace of mind.
  • Costs to prepare a Deed or obtain a tax certification for closing.

Closing costs are unavoidable, but that doesn’t have to spoil the excitement of purchasing your home! If you are concerned about the amount of your closing costs, talk to your real estate agent about how to minimize your out-of-pocket expenses at the closing table.

Your Local, Independently Owned Settlement Services Company

Watermark Land Transfer is a full-service title search and title insurance company serving the central Pennsylvania and northern Maryland regions. Our team of title and closing agents has performed thousands of title searches on properties of all types including residential and commercial properties, rental units, distressed properties, farms, and estates.

From initial title search to closing day, we work diligently to help our clients have a stress-free closing. If you are getting ready to settle on your new home, you have a choice to select your title company. Reach out to us today for a personal approach to your settlement.

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