In a real estate transaction, people naturally focus on the immediate, upfront expenses: the home’s purchase price and the down payment (if you’re a buyer); repairs, renovations and improvements to get the home show-ready (if you’re a seller). But before the deal’s done, there are additional expenses to cover — the notorious closing costs.

Both buyers and sellers typically pay closing costs, and the amount they’ll pay can vary depending on several factors, including the price of the home, the sort of mortgage the buyer has, the professionals involved, and the location (state) the home’s in. And also: the details of their particular transaction. While certain closing costs traditionally fall to one party or the other, in home sales — as in many contractural agreements — many things can 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.

So if you buy a home for $250,000, your closing costs might range from $5,000 to $12,500. If you’re selling that same home, your costs could be anywhere from $15,000 to $25,000.

Unfortunately, you often don’t know the final number until you receive, roughly three business days before closing day, a closing statement or settlement statement, which delineates all the closing costs in black and white. Sellers, though, often 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 and an estimate of the sum they will actually receive, or net, after the final purchase contract is signed.

Closing costs for sellers

Sellers and buyers pay different types of closing costs. 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: The compensation the buyer’s and seller’s agents get for the home sale. Sellers typically pay both commissions, a percentage 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 with a homeowner’s association (HOA), any outstanding HOA fees need to be paid at the closing.
  • Property taxes: If there are any unpaid property taxes on the home, the seller will be on the hook for bringing those current, as of the amount owed at the time of closing.

Closing costs for buyers

Buyers typically pay the following costs, which are usually paid out of pocket at closing. Many of these are connected to obtaining a home loan and are part of your mortgage costs.

  • Attorney costs: 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 fee: If you choose to have a home inspection to assess the property’s condition, you’ll pay the inspector’s tab at the closing table.
  • Appraisal fee: If you’re financing the purchase, your bank will request an appraisal, or estimate of the home’s value, as part of the mortgage application process.
  • Underwriting/credit reporting fees: 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 search fee and insurance: 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.

Closing costs vary depending on loan type

As a buyer with a conventional mortgage, your various fees (see above) 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 small down payment. In such cases, lenders 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. Often these are due when you close on the property.

Many federal government-backed loans that require only 3.5 percent down come with one-time funding fees (VA loans) or upfront fees (USDA loans). With FHA loans, you’ll need to pay a mortgage insurance premium (MIP) at the closing table — equaling 1.75 percent of the total loan amount — along with annual premiums thereafter.

If you’re getting a mortgage from a private lender, like a bank or mortgage company, you often have to pay private mortgage insurance (PMI) if you’re contributing less than the standard 20 percent down payment on the home. 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.

Saving money on closing costs

While closing costs are fairly typical, there may be some steps you can take to reduce the total amount you’ll pay. Here are a few strategies for saving on closing costs:

  • Seller concessions: As a buyer, you could negotiate with the seller to pay some of your closing costs (often in lieu of their making home repairs or lowering their asking price). For example, in many states, sellers typically cover the cost of a title insurance policy for new owners. These seller concessionare often outlined in the initial purchase and sale agreement, or added to it afterwards.
  • Lender (credits) paying closing costs: Your lender may be willing to pay a portion or all of your closing costs if you accept a higher interest rate for your loan.
  • Closing cost assistance: Certain programs, often for low-to-moderate income or first-time homebuyers, provide grants or loans to help cover closing costs.

Bottom line on who pays closing costs

If you’re buying or selling a home, chances are good you’ll need to budget for closing costs in addition to your down payment. And while both buyers and sellers pay closing costs, it’s common for the two parties to negotiate which cost will be covered by whom. These costs can also vary based on the loan you choose, so it’s important to be aware of that as you shop around for a mortgage.

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