Understanding Closing Costs for Homebuyers and Sellers
Closing Costs: Buying or selling a home involves more than just agreeing on a purchase price. While most people focus on the down payment, home price, or repairs, there’s another important piece of the transaction that can catch buyers and sellers off guard: closing costs.
Closing costs are the fees and expenses required to finalize a real estate transaction. They cover everything from loan processing and title work to taxes and insurance, and they are paid by both buyers and sellers. The exact amount varies depending on factors such as the home loan type, location, purchase price, and lender requirements.
Understanding how closing costs work and who pays which fees can help you plan ahead, negotiate more effectively, and avoid surprises at the closing table.
Who Pays Closing Costs: The Buyer or the Seller?
In most real estate transactions, both parties pay closing costs, but the responsibilities are different.
- Buyers typically pay costs related to securing a home mortgage
- Sellers usually pay costs related to transferring ownership and paying off existing obligations
Some fees are negotiable, while others are customary or required by state law or lenders. Let’s break it down.
Do Buyers Pay Closing Costs?
Yes. Buyers almost always pay closing costs, particularly those tied to obtaining a home loan. These costs are usually paid out-of-pocket at closing, though in some cases they can be rolled into the loan or offset by seller concessions.
Common Buyer Closing Costs
Lender Fees
Mortgage lenders charge fees for originating and processing a home loan. These may include:
- Loan origination fees
- Application fees
- Credit report and underwriting fees
These costs compensate the lender for evaluating, approving, and preparing your home mortgage.
Home Appraisal
Lenders require an appraisal to confirm the home’s fair market value. This protects the lender by ensuring the property is worth at least the loan amount. Appraisal fees typically range from a few hundred dollars, depending on location and property type.
Home Inspection
While not always mandatory, a home inspection is strongly recommended—especially for first-time buyers. This inspection assesses the property’s condition and can uncover issues that may be used as negotiation points.
Homeowners Insurance
Most lenders require buyers to purchase homeowners insurance before closing. Often, the first year’s premium (or several months) must be prepaid and placed into an escrow account.
Title Costs
Title-related fees include:
- Title search to confirm legal ownership
- Lender’s title insurance, which is usually required
- Owner’s title insurance, which protects the buyer (paid by the seller in some states)
How Loan Type Affects Buyer Closing Costs
Not all home loans are structured the same. Closing costs can vary significantly depending on the type of mortgage you choose. Buyers making smaller down payments often face higher costs because lenders take on more risk. For example:
- Conventional loans with less than 20% down often require private mortgage insurance (PMI)
- Some lenders require upfront PMI payments at closing
- FHA, VA, and USDA loans have different upfront and ongoing fee structures
Your mortgage lender can provide a detailed estimate early in the process so you know what to expect.
Do Sellers Pay Closing Costs?
Yes, sellers also pay closing costs, though these are usually deducted from the sale proceeds rather than paid out-of-pocket.
Common Seller Closing Costs
Title Costs
In some states, sellers are responsible for owner’s title insurance. Rules vary by location, so local custom matters.
Transfer Taxes
Also known as documentary stamp taxes, these fees cover the legal transfer of property ownership.
Property Taxes
Sellers must pay property taxes owed up until the closing date. These are typically prorated.
HOA Fees
If the property is part of a homeowners association, any outstanding HOA dues must be paid at closing.
Seller Concessions
To make a deal more attractive, sellers may agree to pay some of the buyer’s closing costs or cover repairs found during inspection.
Mortgage Payoff
If the seller still has a mortgage, the remaining balance must be paid in full before ownership transfers.
Closing Costs Both Buyers and Sellers May Pay
Attorney Fees
In some states, real estate attorneys are required to review contracts and closing documents. Fees may be hourly or flat-rate.
Real Estate Agent Commissions
Agent commissions are typically paid at closing and usually range from 2.5% to 3% per agent. In many cases, the seller pays both agents’ commissions, but this should always be clearly outlined in the contract.
How Much Are Closing Costs?
Closing costs vary, but a general rule of thumb is:
- Buyers: Expect to pay 2%–5% of the home’s purchase price
- On a $350,000 home, that’s roughly $7,000 to $17,500
According to Fannie Mae, this range applies to most standard home loans. Buyers typically receive a Closing Disclosure about three business days before closing. This document outlines all final costs in detail. Sellers may receive a net sheet earlier, showing estimated proceeds after expenses.
How to Save Money on Closing Costs
Tips for Buyers
- Negotiate seller concessions
- Compare fees from different home lenders
- Ask about first-time buyer assistance programs
- Look into state, local, or federal grants for closing costs
Many assistance programs are specifically designed to help first-time buyers with both down payments and closing expenses.
Tips for Sellers
- Negotiate real estate commissions
- Compare attorney and title service fees
- Understand which costs are customary versus negotiable in your state
Even small reductions can add up to thousands of dollars in savings.
Next Steps: Prepare for a Smooth Closing
Whether you’re buying your first home or selling a property, understanding closing costs is key to avoiding last-minute stress. A knowledgeable real estate agent and mortgage lender can help you estimate, explain, and negotiate these costs well before closing day.
If you’re planning to apply for a home loan or home mortgage, start by asking your lender for a detailed cost estimate early in the process. Preparation is the best way to protect your budget and move confidently toward closing.
At First Nation Financial, we don’t just push paperwork, we partner with you, guide you step by step, and help you understand exactly what you need to do to qualify. We believe in second chances, creative solutions, and turning “not yet” into “let’s do this.”
So if you’ve been waiting until everything’s “perfect,” here’s your sign: it doesn’t have to be. What you need is someone who understands where you’re coming from and knows how to get you where you want to go.
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