Your Guide to Home Closing Costs

When buying or selling a home, many people focus on the sale price but overlook an important part of the transaction: closing costs. These are the fees and expenses that come due at the end of the real estate process, and they can significantly affect your bottom line whether you’re the buyer or the seller. Understanding what closing costs are on a home, who pays them, and how much you might owe can help you budget wisely and avoid surprises on closing day.

What Are Closing Costs on a Home?

Closing costs are the various fees and expenses paid at the end of a real estate transaction when the property officially changes hands from seller to buyer. Closing costs compensate the professionals and services that make the transaction legal, secure, and officially recorded. Without them, there would be no certified hand-off of ownership. 

These costs typically include things like loan processing fees, appraisal fees, title insurance, and taxes. While some closing costs are negotiable, others are fixed and vary based on location, property price, and the type of loan.

Who Pays Closing Costs?

Both buyers and sellers are responsible for paying different portions of the closing costs, and some costs are negotiable. Buyers typically pay for most lender-related fees, while sellers handle agent commissions and title transfers. 

In some cases, buyers may negotiate for the seller to pay a portion of their costs, especially in a buyer’s market. It all depends on local market trends and the terms agreed upon during negotiations. In some states, it’s common for the seller to pay for the owner’s title insurance policy, while in others, the buyer covers it. 

Common Closing Costs for Buyers

Buyers tend to shoulder more of the closing costs than sellers, especially if they're financing the purchase with a mortgage, which includes: 

• Loan Origination Fee: A charge by the lender for processing your loan. This can vary but is often about 0.5% to 1% of the total loan amount.
• Appraisal Fee: Pays for a professional appraisal to determine the home’s market value, typically required by lenders to ensure they aren’t over-lending.
• Home Inspection Fee: Covers the cost of a professional home inspection to assess the property’s condition and uncover any hidden issues.
• Title Search and Title Insurance: Ensures the property has a clear title and protects the lender against future ownership disputes. This is critical to avoid legal issues down the line.
• Attorney Fees: In some states, legal representation is required during the closing process to ensure that documents are properly reviewed and filed.
• Prepaid Costs: These include property taxes, homeowner’s insurance, and mortgage interest that needs to be paid upfront.
• Credit Report Fee: A fee to pull your credit report as part of the mortgage loan approval process.
• Escrow Fees: Covers the cost of an escrow agent who handles the funds and closing documents.
• Recording Fees: Charges for recording the new ownership with the local government.
• Other Fees: Certain transactions could require pest inspections, flood certifications, or survey costs, depending on the property location and loan type.

Common Closing Costs for Sellers

Sellers also pay a portion of closing costs, though usually less than buyers, such as: 

• Real Estate Agent Commissions: Sellers are responsible for paying the commissions for both the buyer’s and seller’s agents. However, if you sell to a cash home buyer, you don’t have to worry about commissions.
• Title Transfer Fees: Charges for transferring the property title to the buyer.
• Attorney Fees: In certain states, sellers must pay legal fees for preparing the deed and other documents.
• Outstanding Property Taxes: Any unpaid taxes must be settled before closing to ensure a clean transfer of ownership.
• HOA Fees: If the home is part of a homeowners association, any due or prorated fees must be paid before closing.
• Seller Concessions: Sometimes sellers agree to cover a portion of the buyer's closing costs to sweeten the deal, especially in a competitive market.
• Mortgage Payoff: Any remaining balance on the mortgage must be paid off at closing, including possible prepayment penalties.

How Much Are Closing Costs?

Closing costs typically range from 2 to 5 percent of the home’s purchase price for buyers. So, on a $300,000 home, closing costs could be anywhere from $6,000 to $15,000. For sellers, estimated closing costs usually land around 6 to 10 percent, primarily due to agent commissions and payoff-related charges.

The exact amount varies depending on your location, lender fees, and the complexity of the transaction. Your real estate agent or lender can provide a loan estimate or closing disclosure to give you a clearer picture of your expected costs.

Keep in mind that these figures don’t include potential repair costs or moving expenses. Budgeting for these additional factors can help reduce financial stress during the transition to your new home.

FAQs

What is typically included in closing costs?

Closing costs typically include fees such as loan origination fees, appraisal and inspection fees, title insurance, attorney fees, taxes, and agent commissions.

How are home closing costs calculated?

Closing costs are calculated based on the home’s purchase price, local taxes, loan type, and applicable service fees, with estimates provided by your lender or closing agent.

What if I can’t afford closing costs?

If you can't afford closing costs, you can try negotiating seller concessions, apply for down payment assistance programs, or consider selling to a cash home buyer.

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