Who Pays Closing Costs? What Buyers And Sellers Should Know

Closing costs are expenses you pay when you finalize a home purchase. It could include your mortgage origination fees, home inspection costs and real estate agent commissions. Though both buyers and sellers pay some sort of costs when finalizing a home sale, who pays for certain closing costs can be negotiated in the purchase contract.

Who Pays For Closing Costs?

Closing costs are paid throughout the closing process, with the final amounts due when you sign your mortgage or home closing documents when the seller officially transfers the house to the buyer. Though the specific amount you’ll pay in closing costs will vary, expect to pay anywhere from 3% to 6% of your total loan amount. Sellers may pay less, though it will depend on what you negotiate with the buyer.

Closing Costs For Sellers

Yes, sellers do pay for some closing costs. Some of these expenses include:

• Real estate agent commissions: Real estate agents get compensated for their time and effort through commissions. You as the seller will pay these fees if you're working with a real estate agent. Your real estate agent may split the commission with the buyer's real estate agent if they worked with one as well. Fees can be up to 6% of the home's purchase price.
• Owner’s title insurance: This will protect you from any legal claims that may come forward against the home.
• Transfer taxes: Municipalities and counties may impose a one-time fee to transfer the deed from one owner to another.

Closing Costs For Buyers

Home buyers typically cover most of the closing costs associated with buying a home. Here’s a breakdown of some of these fees:

• Property taxes: Buyers typically pay for property taxes for the remainder of the year from the closing date onward.
• Appraisal fee: A home appraisal helps a qualified appraiser determine the fair market value of the home. It’s usually required by lenders when taking out a mortgage.
• Home inspection: A home inspection is completed to see the current condition of the home. If the report comes back noting some major issues, you can negotiate with the seller to make repairs or offer you a credit on the sale.
• Lender’s title insurance: This cost protects your lender from any potential liens or claims put on the house.
• Application fee: Some lenders may charge a fee to process your mortgage application.
• Courier fee: You may need to pay these fees to mail documents to your mortgage lender, or for the lender to mail documents to help finalize the closing.
• Loan origination fee: An origination fee is what a lender charges to process a mortgage loan for a borrower.
• Processing and underwriting fees: Some lenders may charge extra fees to process the mortgage application, though it could be rolled into origination fees.
• Credit report fee: Lenders may charge a fee to pull your credit report, though this amount could be included in your underwriting or overall origination fee.
• Escrow fees: This is part of your closing costs where you pay fees to the title or escrow company to hold onto your earnest money for the seller. The company may also charge this fee to cover paperwork and record money sent or transferred.
• Notary fees: Though typically rolled into processing or origination fees, you may have to pay for a notary to officiate your documentation for a mortgage.
• Attorney fees: If you hire a real estate attorney to finalize the home closing, you’ll need to pay a fee for their services.
• Homeowners insurance: Lenders typically require their borrowers to have homeowners insurance in place by the closing date.
• Flood insurance: Homes that are more susceptible to floods or are located in a flood-prone area may be required to have flood insurance.

How To Save Money On Closing Costs

Closing costs can add up to tens of thousands of dollars. The good news is that there are several ways to lower the amount you pay.

For The Buyer

Several ways buyers can try to lower their closing costs include:

• Shopping around mortgage lenders to find a lower rate or fees
• Shop around for real estate appraisers, home inspectors and title insurance companies if possible
• Consider negotiating for seller concessions, where the seller agrees to pay for part of your closing costs
• Look to see if you qualify for any assistance programs for first-time home buyers

For The Seller

Although sellers typically pay fewer closing costs, they may be able to negotiate with their real estate agent to see if they’re willing to lower their commission.

FAQs About Who Covers Closing Costs

To learn more about who pays for closing costs, read these frequently asked questions.

Do I still pay closing costs if I’m paying cash?

Yes, you will still pay closing costs if you’re buying a house with cash. The amount you pay may be less since there aren’t any lender fees to worry about.

Why is the buyer usually responsible for the largest portion of closing costs?

The buyer is usually responsible for most of the costs because mortgage fees usually are the largest. These fees include issuing the loan, fees to record the transfer of funds, and other costs like home appraiser and home inspection fees.

Are down payments part of closing costs?

No, your home down payment isn't part of the closing costs.

Do sellers pay closing costs?

Yes, sellers do pay for closing costs. In most cases they’re only responsible for real estate agent commissions, title transfer fees and seller’s title insurance unless otherwise negotiated with the buyer.

Can closing costs be rolled into a loan?

Yes, closing costs may be rolled into a loan. However, your lender may charge you a higher interest rate, which could cost you more overall.

The Bottom Line: Both Buyers And Sellers Pay Closing Costs

Home buyers and sellers have to pay closing costs, though the exact type and amount will depend on what both parties negotiate. Knowing the amount you’re responsible for will help you get ahead and start saving for what you need. Speaking with a reputable lender will also help you to better estimate closing costs. Get ahead by applying with Rocket Mortgage^® to start the mortgage loan process.