Closing costs overview
Before going into who pays closing costs, it’s crucial to understand the different types you may encounter and the average cost you’ll need to factor into your budget potentially.
Types of closing costs
Closing costs are fees and expenses incurred during the purchase or sale of a property. This includes appraisal fees, title search fees, attorney fees, and loan origination fees.
Appraisal fees include costs incurred to appraise the property. Title fees refer to the verification process needed, such as analyzing public records, to ensure the seller is legally entitled to sell the property. Real estate transfer taxes may also be part of the costs since they are due at closing. Any attorneys involved in the home purchase from the buyer’s side to review and sign off the purchase agreement will also be part of the closing cost expense. Lastly, the loan origination fee refers to the lender’s charges to process the loan. Generally, the loan origination fee is a percentage of the loan amount or a flat fee, between 0.5% to 1% of the loan amount.
Closing costs can vary widely depending on the location, the type of property, and the lender. However, expenses such as a home inspection aren’t generally part of closing costs since it’s an optional add-on rather than the lender’s requirement.
Average cost of closing costs
On average, closing costs can range from 2% to 5% of the purchase price. For example, if the sale price for a home is $250,000, the closing costs could be anywhere from $5,000 to $12,500.
Closing costs responsibilities
Typically, buyers are responsible for paying these closing costs as they are needed by both the seller and the mortgage lender to ensure a successful sale. But depending on the home and seller’s circumstances, there may be seller concessions to incentivize buyers and move the transaction forward. In these instances, sellers pay closing costs, either in part or the whole amount, to speed up the purchase at the closing table.
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Does the buyer pay the closing costs?
Yes, in most cases, the buyer is responsible for closing costs, but this will vary depending on the agreement with the seller. That’s why it’s essential to factor the purchase price into closing costs, the home loan amount, and the other expenses when considering buying a home. However, before agreeing to closing costs, it’s always worth working with your real estate agent to see if there is room to negotiate from the seller’s side before agreeing to the costs.
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When do the sellers pay the closing costs?
Sometimes, sellers may offer to pay some or all closing costs to sweeten the deal and move the transaction forward. Usually, there is some room to negotiate closing costs before the purchase agreement is signed – so if you’d like the seller to pay some or all of the closing costs, the time to do that is before the final agreements go through.
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Other options
Other options for closing costs include applying to government assistance programs in your state or local area to fund them if you meet the requirements. Lenders may also offer options for them. You may also have options for closing costs if you are eligible for low low-costs such as FHA and VA loans.
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