Who Pays Closing Costs?

By 

Clever Real Estate

Updated 

May 16th, 2019

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During a typical home sale, both the buyer and the seller are responsible for paying closing costs. Read on to learn more about which fees you can expect to pay.

At the end of a typical home sale, both the seller and buyer pay an assortment of taxes and fees that are collectively called “closing costs.”

Usually, each party is responsible for paying their own set of fees, but there are also some costs that the seller and buyer split.

The buyer's closing costs usually amount to 3-5% of the home’s sale price while sellers typically pay 1-3%.

Depending on where you live, there are a wide variety of possible closing costs you might face. Exactly what you pay — and who pays for what — is determined largely based on the laws and conventions in your local area.

"Who pays what" is also up for negotiation; whether you’re a seller or buyer, you have the option to ask the other party to pay for a specific cost or credit you a lump sum to help cover your closing costs.

Note that closing costs are not the only expense that most buyers and sellers have at closing:

  • Buyers that are getting a mortgage have to pay cash for their down payment, which could be as low as 3.5%, but many put down around 20%.
  • Sellers have to pay for realtor commission, which usually amounts to 5-6% of the sale price.

The down payment and realtor fees are usually the biggest expense for buyers and sellers, respectively, but they're typically not considered part of closing costs.

What are closing costs?

When you buy or sell a house, closing costs are the assortment of fees that you and the other party pay to finalize the sale.

The specifics of what costs apply can vary widely depending on where you live. Local regulations and real estate laws have a big impact on what fees are charged and how much they cost.

If you’re a new home buyer or seller, closing costs can be an overwhelming topic — there are so many possible fees! Luckily, it’s not that important to know all the potential fees, as many won’t apply, aren’t negotiable, or aren’t especially costly.

One simple way to wrap your head around closing costs is to divide them into categories. The major types of fees you’ll encounter at closing are:

  • Loan costs: Fees that the buyer's lender charges to process and approve the loan. Loan costs are usually paid by the buyer.
  • Prepaid costs: An assortment of costs that the lender requires the buyer to pay in advance, like homeowners insurance and property taxes. Prepaid costs are always paid by the buyer.
  • Title and settlement fees: Costs paid to the settlement agent (often an escrow or title company) as well as any fees associated with the title search and the title insurance premiums. These fees are often split between buyers and sellers.
  • Government recording and transfer charges: When you officially transfer ownership, the state, county, and/or city where the home is located will charge taxes and fees. Sometimes these fees are split, though it's fairly common for the seller to cover these costs.

Another thing to note about closing costs: it’s common for buyers — especially first time homeowners that may not have as much cash — to ask sellers to cover their closing costs. This lets buyers reduce the amount of cash they have to bring to closing. Sometimes, sellers even offer to pay their buyer’s closing costs proactively to expand the pool of buyers who can afford their home.

» MORE: Should you help cover your buyer's closing costs?

Seller closing costs

The exact closing costs that you can expect to pay as a seller varies depending on where you live and what you negotiate with your buyer. That being said, the following are costs that sellers can typically expect to pay at closing (see below for specific costs):

There are many other possible closing costs that sellers may be responsible for. However, they may not apply as often; it depends on your exact situation. These include:

  • HOA fees
  • Home warranty fees
  • Mortgage prepayment fees

Note, in addition to closing costs, sellers are also responsible for paying realtor commission at closing. Realtor commission rates are usually 5-6%, and is often the biggest cost for home sellers at closing.

Buyer closing costs

The lion’s share of what you pay in closing costs as a buyer will be fees related to your mortgage. Additional fees and charges may apply as well, depending on where you’re buying and what you work out with your seller. Below, we’ve outlined the costs that most buyers can typically expect to pay at closing (see below for specific costs):

In addition to the closing costs listed above, the buyer might also be responsible for paying:

  • Natural disaster certification fee
  • Pest inspection
  • Real estate attorney fees

Reminder: buyers often negotiate to have sellers cover their closing costs. This can limit the amount of cash you need to bring to closing when buying a house. However, there's likely a limit to how much help you can recieve, which could be as low as 3% depending on what kind of mortgage you're getting.

Closing cost comparison

Who typically pays?Closing costTypical fee
SellerTransfer taxesVaries
Owner's title insuranceAround 0.4% of home sale price
Deed recording feesVaries
Prorated property taxesVaries (depending on tax rate and close date)
Mortgage prepayment penaltyVaries
Mortgage payoffVaries
Credits towards buyer's closing costsVaries
BuyerLoan origination fees1% of loan value
Mortgage application fee$25–150
Appraisal fee$300–1,000
Points on mortgageVaries
Wire transfer fee$10–50
Flood certification fee$15–25
Private mortgage insurance application feeVaries
Lender-required home inspection fees$300–1,000
Credit report$30–50
Survey fee$85–600
Prepaid homeowner's insurance, mortgage interest, and property taxesVaries
Lender title insuranceAround 0.1% of home sale price
Mortgage transfer taxesVaries
SplitSettlement/closing fee$250–1,500

When are closing costs due?

Closing costs are due when the home changes hands. This happens during a process called settlement, which usually happens on the closing date specified on the buyer’s and seller’s signed purchase agreement signed by the buyer and seller.

At closing, buyers bring a lump sum of money — usually in the form of a cashier's check or certified check — to cover their down payment and closing costs.

The amount of money that the buyer needs to bring to close the sale is referred to as the "cash to close." This figure accounts for everything the buyer has to pay, including their closing costs and down payment, minus any credits from the seller and their earnest money deposit.

Prior to closing, the buyer’s lender will specify their "cash to close;" buyers aren’t responsible for calculating this amount themselves.

Sellers generally don't have to worry about bringing cash to cover their closing costs; any charges the seller has to pay usually come out of the proceeds generated from the sale. The exception is when the seller's closing costs and the amount they owe on their mortgage is more than what they sold their home for. In those situations, the seller would usually have to bring money to settlement to close the deal.

How to reduce closing costs

When you buy or sell a home, there are a couple of ways that you may be able to reduce your closing costs, such as shopping around for title companies, asking for a reissue rate on your title insurance premiums, and negotiating to have the other party cover a greater portion of the closing costs.

  • Shop around for title companies: The title insurance premiums probably won't vary (some state regulatory agencies even set the premium amounts), but title fees can vary drastically from company to company.
  • Ask for a reissue rate for your title insurance: Discounts are often available if the seller's title insurance was issued within the last 10 years. Reissue rates could net you a discount around 40% on title insurance premiums
  • Negotiate to have the buyer or seller cover your closing costs: Having the other party in the real estate transaction cover a portion of your closing costs can be an effective way for sellers to get more from their home's sale or for buyers to reduce the amount of money they have to bring to closing.

» MORE: Can a Seller Refuse to Pay Closing Costs?

Sellers looking to save money at closing should consider reducing what is likely their single largest expense: realtor commission.

Though realtor fees are not traditionally considered a closing cost, lowering realtor commission could be your best way to save money when selling a home. There are a few ways to do this, including negotiating with your realtor for a lower commission rate, choosing to work with a discount real estate broker, or even selling your home For Sale By Owner.

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