Closing costs are the fees associated with buying and selling a home. They may be incurred by either the buyer or seller. Here’s what you should know about the various fees and whether the buyer or seller pays.
Closing Costs For Homebuyers
Aside from the down payment and earnest money the buyer is responsible for most of the closing costs. Some of the fees can be negotiated and the amounts can vary based on the state, lender, and mortgage type.
Buyers typically pay for property-related fees including the appraisal fee, home inspection fees and loan-related fees. These include the application fee, attorney’s fees, and mortgage broker fee.
Other closing costs for buyers are:
- Credit report fee.
- Origination fee, also known as the underwriting fee or processing fee. This pays for administrative services when making the loan, including document preparation and notary fees.
- Discount points. Each point is 1% of the loan amount. Points can be paid at closing to lower the interest rate on the loan.
- Flood determination. If the property is located within a flood zone, flood insurance will need to be purchased.
- Document preparation fee.
- Mortgage insurance fees. If the buyer is paying a deposit of less than 20% they are often required to get mortgage insurance.
- Property taxes. Usually between 2 and 6 months of county taxes.
- Annual HOA fee and HOA transfer fee.
- Pest inspection.
- Escrow deposit. Depending on the lender you may be required to pay 2 months of property tax and mortgage insurance.
- Homeowner’s insurance. Lenders often require the premium for 1 year to be paid.
- Transfer tax.
- Title fees, including search fees, lender’s title insurance, and owner’s title insurance.
- FHA, VA and USDA fee. If the loan is through the Federal Housing Administration the buyer is required to pay FHA insurance premiums and an upfront payment of 1.75%. If the loan is through the Department of Veterans Affairs or the USDA the buyer pays a guarantee fee.
Closing Costs for Home Sellers
The fees that the seller is responsible for can vary greatly from sale to sale. Buyers will often negotiate to have the seller pay some or even all of the closing costs. One fee that sellers always pay is the real estate commission which is usually 5% to 6% of the selling price.
Negotiable closing costs for home sellers
Almost all fees are negotiable and may be paid by the buyer or the seller. What the seller pays is largely dependent on how motivated they are to sell.
For example, if the seller has had their property listed for a long time and hasn’t had many offers they may choose to pay most or all of the closing costs. On the reverse, if the seller has just listed a property in a desirable neighborhood and has already had several offers they are less likely to agree to pay any of the closing costs.
Closing costs with a cash sale
When paying cash for a property, some of the fees are eliminated. When paying cash there’s no need to pay lender associated fees such as the credit report fee and the origination fee.
Now that you know which closing costs the buyer and seller are responsible for, you should be ready to go to your closing. If you have any questions about closing costs, title insurance, or escrow services, or click here to email us and we’ll be happy to assist.