Closing costs are expenses over the selling price in a real estate transaction. The buyer will be in charge of paying most of these costs. The total amount of the closing cost will vary greatly depending on the value of the property and the state in which it is located.
The closing procedure begins when you sign a purchase and sale agreement. The agreement specifies a closing date.
Closing Costs Paid by the Seller
While the majority of the costs are paid by the buyer, the seller still should expect to pay a significant amount. All the closing fees paid by the seller are clearly outlined in the closing disclosure.
Closing Fee: This fee, also called Escrow Fee is paid to the title company, attorney or escrow company for handling the closing. The title or escrow company is an independent party that oversees the sale. Some states require a real estate attorney to be at each closing.
Attorney fee: You will only have to pay this if you chose to be represented by an attorney at the settlement. This fee can be sometimes paid by the seller and other times by the buyer.
Real Estate Broker Commission: This cost is typically between 4% and 7% of the selling price. This is the highest cost for the seller. Sometimes, this commission can be negotiable and it surely varies depending on the market. This commission is often split between the listing agent and the buyer’s agent.
Outstanding Loan Payoff: When closing, you will also have to pay any outstanding amount left on your mortgage. You will also have to pay due to prorated interest. In some cases, you even have to pay a prepayment penalty for paying your loan off before the end of the term.
Recording Fees: Recording fees refer to the taxes that the state or local government imposed for the transfer of the title from the seller to the buyer.
The sellers will have to also pay other closing costs depending on the situation. Such costs are title insurance fees, prorated property taxes, and liens or judgments against the property.
Closing Costs Paid by the Buyer
Loan Origination Fee: The buyer pays this fee to the lender to cover administrative costs and is usually around 1%. However, in some cases there is no origination fee or the seller is required to pay part of it.
Loan Discount: This is the money you will have to pay upfront to have a lower interest rate.
Application Fee: Some lenders charge this application fee that usually is around $300.
Appraisal Fee: You will have to pay this fee to the appraisal company to confirm the market value of the house.
Credit Report Fee: Your credit score is crucial in determining the interest rate you’ll get. This fee is of around $25.
Lender Inspection Fee: This fee applies if you are either building a new home or are buying a partially constructed house.
Mortgage Insurance Application Fee: This fee online applies if the down payment is less than 20%.
Mortgage Insurance Premium: You will need to pay this only if your lender requires you to pay the first year’s mortgage up front.
Prepaid Interest: Your lender will most likely ask you to pay any interest that will accrue before you will pay your first mortgage payment.
Home Inspection: This inspection checks for damage, pests and other such issues.
Courier fees: You may pay up to $60 for the courier services that carry all the paperwork between you and the lender.
Flood certification: This only applies if the house is near a floodplain. FEMA issues this certification and costs around $15 to $20.
Survey fee: This fee is paid to a survey company that verifies property lines as well as other things like shared fences. Only some states require this survey.
Underwriting fee: This fee is paid to the lender and covers the cost of researching to determine if they should approve the loan or not.
Depending on the situation, other fees might show up on your Closing disclosure such as notary fees, title insurance fees, title search, hazard insurance premiums, and lender’s attorney fee.
Buyers have an option to eliminate all upfront expenses with the no-closing-cost mortgage. However, choosing this option also means that the buyer will pay more due to higher interest rates on the mortgage.
Bottom Line: How Much Do I Have to Pay?
If you are the seller, you will have to pay between 1% and 3% of the house’s price, while the buyer will have to pay between 3% and 4% of the house value. This value doesn’t include the real estate broker commission, payable by the seller.
How much you will pay depends greatly on the state you buy or sell the house in. Different states have different legal requirements and closing fees for the sale of a home. To find an amount that is close to reality, you can use a closing costs calculator online. Another option is to ask your realtor to give you a more accurate estimate.
For example, if you buy a house at a selling price of $250,000 in San Francisco, CA, you will have to pay around $6,500 closing costs. If you buy a house that has the same value in New York, NY, you will have to pay around $12,000 closing costs.
According to the new rules for the closing procedure, all paperwork, including the Closing Disclosure have to be ready three days prior to closing. The Buyer will receive from the lender this document that outlines all the closing costs. The seller will receive a similar document from the realtor.
- Both the buyer and the seller will have to pay closing costs
- Closing costs vary greatly depending on the property value, the lender, and the state in which the house is situated
- Typically, the closing costs for the buyer are between 3% and 4%
- Closing costs for the seller are between 1% and 3% plus real estate agent’s commission and any outstanding loan payoff
- Buyers can eliminate the upfront payment of the closing costs by opting for a no-closing-cost mortgage