Who Pays the Closing Costs

Closing costs are an essential part of the home buying process that both buyers and sellers need to understand. These fees are paid to third parties to finalize a home purchase and can vary widely depending on state requirements, loan type, lender fees, local customs, and buyer-seller agreements.

Homebuyers Closing Costs

For homebuyers, closing costs usually include loan origination fees, discount points, mortgage insurance, and other related mortgage fees. Third-party fees such as attorneys’ fees, appraisal fees, escrow fees, title search fees, prorated property taxes and insurance, and other miscellaneous fees may also apply. Additionally, buyers may be required to escrow monthly payments for property taxes and insurance in advance for up to a year.

Three days before closing, the lender is required to provide a closing disclosure that outlines all fees and the “cash to close” required of the buyer at closing. Typically, buyers need to prepare for a sum equal to 3% to 6% of the home purchase price. Buyers have several options to cover these costs, including paying cash, rolling closing costs into their mortgage, accepting a higher interest rate in exchange for lender-paid fees, or asking the seller to pay them in exchange for a higher purchase price.

Home Sellers Closing Costs

On the other hand, home sellers are usually responsible for paying the buyer’s title insurance and both the buyer’s and seller’s real estate commissions and/or fees. These seller fees can range between 6% to 8% of the home’s sale price and are taken out of the transaction proceeds.

Understanding closing costs is essential for both homebuyers and sellers to ensure a successful and smooth home buying process. It’s crucial to work closely with your lender, real estate agent, and attorney to get a clear understanding of all the fees associated with your home purchase or sale. With proper preparation and negotiation, you can minimize these costs and ensure a successful home buying or selling experience.