Does the Buyer or a Seller Pays the Closing Costs?

Buyers are generally not interested in talking much about closing costs. This is understandable–after all, who wants to add additional expenses to an already costly process? Unfortunately, closing costs are part of buying property.  We’ve broken down the closing costs you can expect to pay when purchasing property and answered the question of who’s responsible for paying the closing costs.

Who Pays Closing Costs?

You may be surprised to learn both sellers and buyers have to pay certain costs in a real estate deal. However, the buyer is responsible for the largest portion of the total costs. Sellers, on the other hand, pay the real estate agent’s commission unless otherwise directed by the contract terms.

Closing Costs

The primary closing costs are:

1. Origination Fees

This is the fee charged by the bank that provided the home loan, and it typically amounts to 1% of the loan amount.

2. Title Insurance

A title company has to make sure that the property’s title is free of any debt or liens. The buyer typically covers the fee for that service.

3. Appraisal Fee

The appraisal fee can cost as much as $500.  Lenders require borrowers to obtain a property appraisal prior to loan approval. The appraisal determines whether the loan amount is comparable to the home’s market value. In the event an appraisal amount is less than the requested loan amount, a lender may deny the loan.

4. Application Fee

The lender charges an application fee for processing a mortgage application.  The fee amount will vary depending on the lender.

5. Attorneys Fees

A real estate attorney does all the legal paperwork associated with the transaction. They draft the home purchase agreement and charge the buyer for their legal services. Bear in mind that all states don’t require that an attorney be involved in the transaction and, therefore, this fee may not be applicable in those states if an attorney isn’t used.

6. Escrow Fee

This is also called a closing fee, and it is paid to the person who handles the closing process. It could be an attorney, escrow company, or title company.

7. Courier Fee

If you are completing the property purchase from another city, you’ll likely be required to send documents to the title company by courier.

8. Credit Report Fee

A loan application requires a credit report. Often the lender requests the information on the borrower’s behalf and charges them for it during the closing.

9. FHA Mortgage Insurance

Separate mortgage insurance is required for FHA loans — this is usually 1.75% of the base loan amount paid upfront.

10. Homeowners Association Transfer Fee

When you buy property in a planned neighborhood community, you are required to join the community’s homeowners’ association. There’s typically a fee associated with transferring ownership from the seller to the buyer, but that can be negotiated between the buyer and seller.

11. Homeowner’s Insurance

Most lenders require borrowers to purchase homeowner’s insurance. The fee will depend on the policy.

12. Inspection Fees

Buyers are supposed to have the property inspected before buying it.  A professional inspector will charge a fee for their services.

13. Survey Fee

A survey is conducted to mark the property’s boundaries.  The survey fee is what surveyors charge to complete this process.

14. Transfer Tax

Transferring the title from the seller to the buyer is subject to taxes, and it’s paid at closing.

15. Underwriting Fee

The lender charges the borrower for underwriting the loan, which is the process of evaluating the financial information needed to calculate the amount of the loan.

Seller’s Closing Costs

Some closing costs are split between the buyer and seller. Although the buyer pays a significant share of the closing costs, sellers also have to pay their share of the fees.

As a Seller, your Closing Costs may Include:

• Agent’s Fee
• Credits towards Closing Costs
• Title Insurance
• Transfer Tax
• Seller’s Attorney Fee
• Prorated Property Taxes
• HOA fees

Buyer’s Closing Costs

As the new property owners, the buyer will be paying most of the closing costs. Closing costs consist of 3% to %5 of the property’s sale price. For example, if you buy a home worth $100,000, you should expect to pay between $6,000 and $10,000 in closing costs.

Buyer’s Closing Costs may Include:

• Attorney Fees
• Inspection Fees
• Appraisal Fees
• Credit Report Fees
• Loan Origination Fees
• Escrow Deposits
• Underwriting Fees
• Lender’s Title
• Survey
• Title Search Fees

Final Thoughts

Closing costs can be a substantial expense, but don’t let that discourage you from buying a home. Closing costs vary from state to state, as does the party responsible for paying them. Most fees are negotiable, and sellers often take responsibility for paying them in order to guarantee a quick and easy sale.