How Much Are Closing Costs? A Guide to Fees for Buyers and Sellers

Buyers can expect to pay between 2% and 5% of a home's purchase price in closing costs, while sellers often pay more, typically 8% to 10% of the sale price. These fees, due at the property transfer, cover services from lenders, title companies, and government agencies. Understanding these costs is critical for accurate budgeting in a real estate transaction.

What Are Closing Costs? Closing costs are the fees and expenses paid to finalize a real estate transaction, transferring ownership from the seller to the buyer. These are separate from the down payment and are paid to various parties, including your mortgage lender, the title company, and local government entities for services like appraisals, inspections, and insurance.

Who Pays Closing Costs: Buyer vs. Seller? Both buyers and sellers have their own set of closing costs. The division is typically negotiated as part of the purchase agreement.

• Buyer Closing Costs: As a buyer, your costs, typically 2% to 5% of the purchase price, are primarily related to obtaining a mortgage. This includes lender fees, title insurance (a policy that protects the lender against title defects), and pre-paid expenses like property taxes and homeowners insurance.
• Seller Closing Costs: Sellers generally pay a higher percentage, often 8% to 10% of the sale price. The largest cost is usually the real estate agent commission, plus items like transfer taxes (a fee imposed by the local government when property changes hands) and their share of title and escrow fees.

What Are Typical Closing Costs for a Buyer? Buyer closing costs fall into two main categories: one-time fees and recurring costs that are pre-paid.

What Are Typical Closing Costs for a Seller? Seller costs are primarily focused on transferring the property title and paying for representation.

• Real Estate Agent Commissions: This is often the most significant cost, negotiated when listing the home.
• Transfer Taxes: A state or local tax fee for recording the deed.
• Title Insurance (Owner's Policy): Often paid by the seller to guarantee the title is clear for the new buyer.
• Prorated Property Taxes: Sellers pay property taxes owed up to the closing date.

When Are Closing Costs Due? The bulk of closing costs are paid at the closing table when the property title is officially transferred. Funds are typically wired or provided via a cashier's check. However, some costs, like home inspections, are paid directly to the service provider when the service is rendered.

How Can You Reduce Your Closing Costs? While you can't avoid closing costs entirely, there are strategies to minimize your out-of-pocket expense.

• Shop Around for Lenders: Lender fees can vary. Obtain Loan Estimates from multiple lenders to compare costs.
• Negotiate with the Seller: In a buyer's market, you can request the seller contribute to your closing costs as a concession.
• Explore Assistance Programs: Many state and local programs offer grants or low-interest loans to help first-time buyers with closing costs.
• Understand "No-Closing-Cost" Mortgages: This option rolls the closing costs into your total loan amount or gives you a higher interest rate, saving money upfront but costing more over the loan's life.

Key Takeaways for Your Transaction Closing costs are a significant part of any real estate deal. Buyers should budget for 2% to 5% of the home's price in addition to their down payment. Sellers should anticipate that 8% to 10% of the sale proceeds will be allocated to closing costs. The most effective way to manage these fees is to review your Loan Estimate and Closing Disclosure carefully and negotiate where possible based on market conditions.