Closing costs

Closing costs is a term every homebuyer and seller needs to understand. Bankrate explains.

What are closing costs?

Closing costs are the fees a seller and buyer pay to complete a real estate transaction. The costs paid at closing usually equal between 2 percent and 7 percent of the property’s sale price. Closing costs vary from state to state and with each real estate transaction, depending on real estate laws and the terms of the sale.

Deeper definition

On the buyer’s side, most of the closing costs relate to the mortgage. Buyers can save money on closing costs by choosing a lender carefully and negotiating the terms of the loan. For example, some lenders charge flat rates for courier services, appraisals and credit reports. Buyers can negotiate with lenders, ask for receipts, and pay only the actual price. Other negotiable fees include administrative and document-preparation fees the lender charges for processing loan paperwork, and a fee for wiring money from the lender to the title company.

Sellers can save money on closing costs by choosing a real estate attorney or title company that offers the best terms. Like lenders, title companies may charge flat rates for services. Sellers can negotiate fees for a title search, title examination and couriers.

Examples of closing costs: The seller

The seller’s closing costs cover the seller’s obligation for the sale and transfer of property. These costs traditionally equal between 1 percent and 3 percent of a home’s sale price and include:

  • Taxes on the sale of the home.
  • Title transfer fee, a closing fee paid to the title company.
  • Fees for the seller’s real estate attorney.
  • The real estate commission. This is not always lumped in with other closing costs.

Examples of closing costs: The buyer

In most real estate transactions, buyers pay a greater percentage of closing costs than sellers, especially if using a mortgage to buy the property. On average, the buyer’s closing costs equal 3 percent to 4 percent of the purchase price. The buyer’s closing costs can include the following:

  • Appraisal fee to verify the value of the home.
  • Home inspection fee for the company that checks for problems like a cracked foundation, leaky roof or faulty plumbing.
  • Title search fee to verify that the property has a clean title history without liens from creditors.
  • Survey costs to determine the boundaries of the property.

Buyers with mortgages pay additional closing costs. These include:

  • A loan origination fee for processing loan paperwork.
  • A fee for checking the buyer’s credit report.
  • An underwriting fee to determine creditworthiness.
  • Taxes on the mortgage.

Some lenders require additional fees for items like a pest inspection, private mortgage insurance, flood certification, hazard insurance and prepaid interest.

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