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Closing Costs: Who Pays What?

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Closing Costs: Who Pays What?

The real estate market is hot right now. Due to high demand and low inventory of houses available, it's a seller's market.

Whether you're a buyer or seller, home buying can be a somewhat confusing process. Even as the buying process winds down, you still have to consider the closing costs. 

So, what are closing costs? And who pays closing costs? 

Well, it can vary depending on a variety of factors. Read on as we cover these variables and discuss how you can determine the closing costs you'll have to pay.

Calculating Closing Costs for a Buyer

Both the buyer and seller are usually required to pay some portion of the closing costs. The buyer is generally responsible for anything related to the property, loan, or mortgage insurance

So, how much are closing costs? Well, typically, the buyer's closing costs are between 2% and 5% of the home sale price. 

The fees you'll need to pay as a buyer will likely consist of the following:

The Mortgage Fees

Buyers are generally responsible for all fees related to the mortgage of the home. You'll usually receive a closing disclosure form a few days before closing the sale. 

The closing disclosure form will lay out all the information you'll need to know. This includes the fees, as well as the terms and conditions. 

You should read this document carefully. You must understand all the costs and fees associated with your mortgage. This can protect you from potential legal or financial repercussions further down the line.

In general, you will have three days to dispute your closure agreement. If you have any concerns about the form, it is important to act quickly.

The Property Fees

There are many property fees associated with purchasing a home. These include the following:

  • Home inspections
  • Appraisals
  • Surveys

These fees are typically the responsibility of the home buyer. 

Additionally, purchasing a home at the end of the year will result in prorated taxes. This means you'll pay for the property taxes left for the remainder of the year. Talk to the home seller to determine what the tax fee might look like. 

Mortgage Insurance  

Though it's not necessarily a closing cost, mortgage insurance (PMI) is a major cost that comes with buying any property. Your mortgage insurance costs depend on the following:

  • Mortgage type
  • Size of your down payment

Smaller down payments typically result in higher mortgage insurance. This is because a small down payment makes you a larger risk in the eyes of the bank.

Making a down payment larger than 20% can help you avoid the mortgage insurance fee entirely.

Calculating Closing Costs for Seller

If you're selling your home, you'll have to pay some closing costs, too. Usually, sellers can expect to pay between 8% and 10% of the total sale price

Some closing fees you can expect to be responsible for as a home seller include the following:

Title Insurance Premiums

Before you can sell your home, you must verify ownership. You will verify ownership by conducting a title search. The home seller will be responsible for any fees associated with the search and any disputes that may arise.

The title search helps to protect everyone involved in the sale from ownership claims. 

Title insurance is a one-time payment. It protects from any ownership issues that may arise, both during buying and after. 

You may be able to get a reduced rate on title insurance if you've lived in the home for less than 10 years. 

Transfer Fees and Taxes

You'll have to pay a fee when transferring the title of your home. As the name suggests, this is the title fee.

Usually, the title fee is the responsibility of the buyer. The cost of this fee will vary depending on the state where the home sale is taking place.

Real Estate Commission

If you decide to sell your home with the help of a realtor, there are some closing costs associated. The seller generally pays both their portion and the buyer's portion of the real estate commission. 

The real estate commission is usually somewhere between 4% and 6% of the total final sale price. 

You may be able to negotiate a lower commission. You can take certain steps to reduce or eliminate this commission fee. 

Some options you may want to consider include the following:

Ask Your Realtor for a Reduced Commission

Generally, in sales where a single real estate agent is representing both the buyer and the seller, it is possible to get a reduced commission. Commissions percentages are not set prices. 

Talk to your realtor to negotiate a lower rate.

Other Closing Costs to Consider

There are other fees associated with selling your home that you may want to be aware of. 

These potential fees include the following:

  • Attorney fees
  • Application fees
  • Recording fees
  • Underwriting fees
  • Escrow fees
  • Credit report fees
  • Bank processing fees
  • Homeowner's Association transfer fees

Before buying or selling a home, you should also consider any Homeowner's Association fees. Some communities may require ongoing fees that may add to the annual cost of investing in a home. These fees are often forgotten or overlooked, so remember to ask about them!

As soon as a buyer's funds become available, the closing costs will be due. Costs are deducted from the home sale's proceeds. 

Must-Have Tips for Saving on Your Closing Costs

Home buying is a costly investment. But there are some tips that can help you lower your closing costs. 

There are no set closing costs, so your savings will ultimately depend on a variety of factors. There are some ways to lower costs or even transfer costs to the buyer or seller.

These include the following:

Negotiate to Transfer Some Costs to the Seller

As a buyer, one of the easiest ways to reduce costs is to negotiate to have them transferred to the seller. Of course, the seller could decline these requests, but it doesn't hurt to ask. 

Sometimes, homes have been on the market for a long time. Sellers may also have other incentives to want to sell quickly. Each of these situations may motivate the seller to take on additional closing costs.

In a lot of cases, sellers would also rather pay more in closing costs than pay for costly repairs. So, if the home requires repair, you'll likely be able to negotiate lower closing costs. 

As a negotiation tip, ask for the seller to cover a specific dollar amount instead of covering certain fees. This will also make the seller more inclined to take on additional costs.

Don't Be Afraid to Shop Around

Even if you're buying a home online, there are certain fees and home costs that you can shop around on. By looking at your available options, you may be able to save. 

For example, you may be able to use different institutions at different price points for costs, such as:

  • Title insurance
  • Home inspections
  • Home surveys

The most important thing to shop around for, however, is the mortgage. Different lending institutions will have different rates that you may qualify for. It is important not to settle for your first option, as this may not be the most cost-efficient choice. 

Shopping for a loan can be an incredibly time-consuming process. You'll want to start early. Securing a loan before you put in an offer on a house can ensure you're ready when you find your perfect home.

Understanding the Real Estate Market

Knowing the kind of market you're shopping in is important to help you save on costs. For example, a seller may not be willing to negotiate cost concessions in a seller's market.

Understanding the market can give you a better sense of the kind of offer you'll be able to place. 

The differences in markets include the following:

Seller's Market

In a seller's market, there are fewer homes available than the number of buyers looking for a home. Many buyers will be looking for investment properties. 

Seller's markets generally mean that sellers will be less likely to negotiate closing costs. They are also more likely to hold out for the best offer, as they'll likely be receiving plenty of them. 

If you're a buyer attempting to purchase a home in a seller's market, offering to pay all closing costs may make the seller more motivated to accept your offer. 

Buyer's Market

In a buyer's market, the conditions are reversed. You'll have much more room to negotiate closing costs with the seller. Oftentimes, homes will sit on the market for a long time, making sellers more motivated to accept any offer they receive. 

Currently, the real estate market is generally considered a seller's market. But conditions can change quickly, so keep an eye on the market if you're considering buying or selling a home at a reasonable price.

Start a New Journey in Your New Home

Now that you know more about closing costs and what you can expect from them, you'll be ready to purchase your dream home. Or, conversely, you'll be ready to boost your investment when you're ready to sell. 

Remember, closing costs can vary, so working with a realtor is the best way to ensure your sale goes smoothly. 


Go to Hommati.com to find great real estate agents and search for the ideal home for your family!