Though it may feel as though there are only two parties involved when a property changes hands – the buyer and the seller – many people are actually working behind the scenes to make the real estate transaction possible. These third-parties are compensated for their products or services through a variety of fees that must be paid at closing, also known as closing costs. Whether you’re the buyer or the seller, knowing who pays closing costs and what to expect will help you plan for closing.
Who Pays Closing Costs?
Who pays closing costs? As U.S. News & World Report explains, both buyers and sellers traditionally have to pay certain closing costs. The amount owed varies based on the property’s price tag, the size and type of home loan used by the buyer, and the local taxes, fees, and requirements to which the property is subject.
The Buyer’s Closing Costs
As Realtor.com points out, closing costs typically total between two and seven percent of a home’s purchase price. For a buyer, this often includes the following charges:
- Loan Origination Fees: This is a charge from your lender for their services in processing the loan paperwork.
- Credit Report Fees: This charge reflects the cost of running a credit report when verifying your credit.
- Underwriting Fees: This cost covers the evaluation of your creditworthiness and the review of your loan application.
- Inspection Fees: Home inspections, pest inspections, and other specialized reviews of the property in preparation for the sale also have costs that must be paid.
- Appraisal Fees: This charge is for the appraisal that confirmed the property’s value.
- Survey Fees: When a surveyor is called in to verify the size and location of a property, expect survey fees.
- Title Search Fees: A title search is conducted to verify that there are no liens against the property that might interfere with its sale. This protects both the buyer and the lender.
- Attorney’s Fees: If an attorney’s services are necessary to complete the sale, they will need to be paid.
- Recording Fees: Many localities charge document recording fees for deeds and mortgages that must be paid at closing.
- Mortgage Insurance: If you are required to pay mortgage insurance, you may be expected to make your initial payment at closing.
- Taxes: Stamp taxes are charged on the money you’ve borrowed for your home purchase.
- Escrow Deposit: Lenders often insist that borrowers fund an escrow account with an amount equal to a few months’ worth of property taxes and insurance.
- Mortgage Points: Sometimes called discount points, mortgage points are essentially fees paid to a lender in exchange for a better interest rate. If your deal with your lender included one or more mortgage points, the cost for these points will be due at the closing table.
The Seller’s Closing Costs
What costs will the seller be responsible for? This answer can change depending on the deal negotiated between the buyer and seller. In some cases, buyers ask sellers to pay a percentage of their closing costs as part of the bargain. As MillionAcres indicates, the list of closing costs that sellers are traditionally responsible for is shorter, but it adds up to a healthy share of the closing cost pie:
- Commissions: Real estate agents earn commission, and the seller is normally responsible for paying that for both the buyer’s agent and their own. This adds up to about six percent of the property’s sale price.
- Transfer Taxes and Recording Fees: These monies are charged by the county or local government to transfer title to the property from seller to buyer.
- Prorated Taxes: The seller must pay the buyer for the share of annual fees that accrued before they took ownership. Homeowners’ association dues are often prorated as part of closing costs as well.
- Title Insurance Premiums: Title insurance protects the buyer and lender in the event that a lien against the property is discovered after the sale. The buyer normally pays this premium.
- Home Warranty Premiums: Many buyers offer a home warranty for a year or so in order to entice buyers. If a seller is doing so, they’ll pay the premium at closing.
So who pays closing costs? Although we’ve divided them into “the buyer’s closing costs” and “the seller’s closing costs,” remember that many transactions don’t follow these guidelines. Like almost everything in the real estate world, closing costs are negotiable. Sometimes the buyer will request that the seller pay the buyer’s closing costs as a part of the deal. Sometimes the costs are split. Sometimes the seller will pay a percentage of the buyer’s closing costs. Whether you’re the buyer or the seller, consider how closing costs could influence your real estate transaction.
Whether you have questions about buying a house, securing a loan, or preparing for closing costs, the experts at PrimeLending of Denver have answers you can trust. Contact us today to learn how we can help you move toward your housing goals.