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In a real estate transaction, people naturally focus on the immediate, upfront expenses. If you’re a buyer, that means the home’s purchase price and the down payment; for sellers, it might be repairs, renovations and improvements to get the home show-ready. But before the deal’s done, there are additional expenses to cover: closing costs.
Both buyers and sellers typically pay some type of closing costs, and the amount can vary depending on several factors, including the price of the home, the sort of mortgage the buyer gets, which state the home is located in and more. While certain costs traditionally fall to either one party or the other, many things might be open to negotiation.
How much are closing costs?
There’s no set number when it comes to closing costs. However, the general rule is that sellers pay between 6 percent and 10 percent of the home’s total purchase price in closing costs, and buyers pay slightly less — around 2 percent to 5 percent of the home’s sale price. While closing costs for sellers are often deducted directly from the home sale proceeds, buyers typically pay their portion out-of-pocket.
Let’s take a look at how that breaks down in today’s market. Say a home sells for the current national median sale price, which is $410,200 as of June 2023. For a transaction at that price, the closing costs for the buyer might range from $8,204 to $20,500. And for the seller, costs could be anywhere from $24,612 to $41,020.
Unfortunately, you often won’t know the final number until roughly three business days before closing day, when you receive what’s called a closing statement or settlement statement. This document delineates all the closing costs in black and white. Sellers might get a heads-up earlier, if their agent has prepared a seller’s net sheet for them — an itemized breakdown of all of the closing costs plus an estimate of the sum they will actually receive, or net, after the final purchase contract is signed.
Do buyers pay closing costs?
Yes. Buyers typically pay the following costs at closing. Many of these fees are connected to obtaining a home loan and are part of your mortgage costs.
- Attorney: Real estate attorneys often review title documents and contracts and pull together closing documents. They typically charge by the hour, though there may be set fees for certain tasks (like composing the purchase and sale agreement).
- Home inspection: If you choose to have a home inspection to assess the property’s condition — which you absolutely should — you’ll pay the inspector’s tab at the closing table.
- Appraisal: If you’re financing the purchase, your bank will require a home appraisal, or estimate of the home’s value, as part of the mortgage application process.
- Underwriting/credit reporting: The lender charges you for its expenses in drawing up your loan, including running a credit check and other underwriting steps.
- Prepaid interest: The amount of interest on your loan that will accumulate between your closing date and when you make your first mortgage payment.
- Homeowners insurance: Many lenders require you take out a policy, with the first premium payment due at the closing.
- Title costs: Title insurance protects against any future claims against or problems with the home’s title. Lender’s title insurance, which covers the mortgage issuer, is usually mandated; buyers can also cover themselves with owner’s title insurance.
Do sellers pay closing costs?
Yes, but sellers incur different types of closing costs than buyers. If you’re selling your house, you may be required to pay the following costs. Generally, these expenses will be deducted “off the top” of the home’s purchase price, unless you specifically ask to pay them separately.
- Realtor commissions: Sellers typically pay the commissions for both agents involved in the transaction (both their own agent and their buyer’s). This usually comes to 5 to 6 percent of the final purchase price.
- Title fees: The costs associated with transferring the home’s title from the seller to the new buyer.
- Homeowners association fees: If the home is in a community run by an HOA, any outstanding HOA fees need to be paid at closing.
- Property taxes: The seller will be on the hook for bringing any unpaid property taxes on the home current, as of closing day.
Closing costs either party might pay
While some closing costs are typically paid by buyers and others are generally paid by sellers, this can vary quite a bit depending on location. For instance, sellers in most of Florida will cover the cost of an owner’s title insurance policy. But the opposite is true in four of the state’s most densely populated counties, including Miami-Dade and Broward.
Who pays which closing costs can also vary depending on the current market conditions. For example, a buyer in a seller’s market will want to be more conservative with their concession requests because they’re less likely to get approved if the seller has multiple competitive offers. In markets where buyers have more leverage, things might be negotiated more in their favor.
Closing costs vary depending on loan type
For a buyer with a conventional mortgage, closing costs will generally constitute between 2 percent and 5 percent of the home’s purchase price. But different loan types have different structures, which means closing costs can vary depending on the type of mortgage you get.
A higher amount usually comes into play for buyers who are making a smaller down payment. In such cases, lenders often affix extra charges to the mortgage, as a sort of insurance to protect themselves in case these higher-risk buyers are delinquent or default on their payments. These are often due when you close on the property.
If you’re putting down less than a 20 percent down payment, you will likely have to pay for private mortgage insurance. Some lenders might require you to make an upfront PMI payment at closing, meaning you pay the full premium amount for the year all at once. And with a government-insured FHA loan, you’ll need to pay a mortgage insurance premium at the closing table, along with annual premiums thereafter.
Saving money on closing costs
While closing costs are very typical, there may be some steps you can take to reduce the total amount you’ll pay.
- Buyers can ask for seller concessions, negotiating for the seller to pay some of their closing costs (often to cover the cost of necessary home repairs). They can also look for local or even federal assistance programs that can help with both down payments and closing costs. Many programs, often for low-to-moderate income or first-time homebuyers, provide grants or favorable loans to help qualified buyers.
- Sellers should also remember to negotiate — particularly regarding their real estate agent’s commission. These fees are a home seller’s most costly expense, and even a small discount can save you thousands of dollars. That’s particularly true on more expensive homes, as the commission is a percentage of the sale price.
A knowledgeable local real estate agent will offer valuable expertise throughout the entire buying or selling process. Your agent can help you understand and potentially negotiate your closing costs, taking much of the stress off of your plate as you finalize the deal.
Both buyers and sellers typically have closing costs to pay, though the types of costs vary. For instance, buyers might pay an appraisal fee, mortgage origination fee, prepaid mortgage interest and homeowners insurance. Sellers often pay real estate agent commissions, title transfer fees, transfer taxes and property taxes.
Yes, you still need to pay closing costs if you’re paying for a home with cash. You won’t need to pay any lender or mortgage fees (obviously), but you’ll be responsible for real estate attorney fees, title and homeowners insurance and the cost of a home inspection.
Sellers typically pay more in closing costs, mainly because sellers are the ones who cover the real estate agents’ commission fees. But while a seller’s closing costs are often deducted from the proceeds of the home sale, buyers typically pay these costs out-of-pocket.
As a buyer, your down payment is not part of your closing costs. While your down payment is a portion of your home’s purchase price, your closing costs include other expenses, like appraisal fees, mortgage origination fees and the like. However, the size of your down payment can affect how much you pay in closing costs: If you put down less than 20 percent, you’ll likely have to pay for private mortgage insurance, and that may be payable at closing.