Who pays closing costs, the buyer or the seller?

In a real estate transaction, people naturally focus on the immediate, upfront expenses. If you’re the buyer, that means the home’s purchase price and the down payment; for sellers, it might be repairs, renovations and improvements to get the home show-ready. But before the deal is done, there are additional expenses to cover: closing costs.

Both buyers and sellers typically pay some type of closing costs, and the amount can vary depending on several factors, including the price of the home, the sort of mortgage the buyer gets, which state the home is located in and more. While certain costs traditionally fall to either one party or the other, many things might be open to negotiation.

How much are closing costs?

There’s no set number when it comes to closing costs. Typically, homebuyers pay around 2 percent to 5 percent of the home’s sale price in closing fees, while sellers pay slightly more — between 6 percent and 10 percent of the home’s price — when you factor in real estate agent commissions. Closing costs for sellers are often deducted directly from the home sale proceeds, while buyers typically pay their portion out-of-pocket.

Let’s take a look at how that breaks down in today’s market. Say a home sells for the national median sale price, which as of October 2023 was $391,800. For a transaction at that price, the closing costs for the buyer might range from $7,836 (2 percent) to $19,590 (5 percent). And for the seller, costs could be anywhere from $23,508 (6 percent) to $39,180 (10 percent).

Unfortunately, you often won’t know the final closing-cost tally until roughly three business days before closing day, when you receive what’s called a closing statement or settlement statement. This document delineates all the closing costs in black and white. Sellers might get a heads-up earlier, if their agent has prepared a seller’s net sheet for them — an itemized breakdown of all of the closing costs, plus an estimate of the sum they will actually receive, or net, after the final purchase contract is signed.

Do buyers pay closing costs?

Yes. Many of the fees buyers pay at closing are connected to obtaining a home loan and are part of your mortgage costs. Typical closing costs for buyers can include:

• Lender-related fees: The lender charges you for its expenses in originating and drawing up your loan and processing your application, including running a credit check and other underwriting steps.
• Appraisal: Your lender will also require a home appraisal, or an independent professional’s estimate of the home’s value, as part of the mortgage application process.
• Homeowners insurance: You will likely be required to take out a home insurance policy, with the first premium payment (or sometimes more) due at closing.
• Title costs: Title insurance protects against any future claims against or problems with the home’s title. Lender’s title insurance, which covers the mortgage issuer, is usually mandated; buyers can also cover themselves with owner’s title insurance.
• Home inspection: If you choose to have a home inspection to assess the property’s condition (which you absolutely should), you’ll pay the inspector’s tab at the closing table.
• Attorney fees: Real estate attorneys often review title documents and contracts and pull together closing documents — in fact, in some states, the transaction cannot legally close without one. They typically charge by the hour, though there may be set fees for certain tasks, like composing the purchase and sale agreement.
• Prepaid interest: The amount of interest on your loan that will accumulate between your closing date and when you make your first mortgage payment.

Do sellers pay closing costs?

Yes, but sellers incur different types of closing costs than buyers. Generally, these expenses will be deducted “off the top” of the home’s purchase price, unless you specifically ask to pay them separately. If you’re selling your house, you may be required to pay the following costs:

• Realtor commissions: Sellers typically pay the commissions for both agents involved in the transaction (both their own agent and their buyer’s). This will be the largest of your costs, usually amounting to between 5 and 6 percent of the final purchase price. On a median-priced home sale of $391,800, 6 percent comes to $23,508.
• Title fees: The costs associated with transferring the home’s title from the seller to the new buyer.
• Transfer taxes: This covers the transfer of ownership from you (the current owner) to the buyer (the new owner).
• Property taxes: The seller will be on the hook for bringing any unpaid property taxes on the home current, as of closing day.
• HOA fees: Similarly, if the home is in a community run by a homeowners association, HOA fees will also need to be paid up-to-date as of closing day.

Closing costs either party might pay

While some closing costs are typically paid by buyers and others are typically paid by sellers, who pays for what can vary quite a bit depending on your location. For instance, in most of Florida, sellers cover the cost of an owner’s title insurance policy. But the opposite is true in four of the state’s 67 counties, including the two most densely populated: Miami-Dade and Broward.

Who pays which closing costs can also vary depending on the current market conditions, and many items are open to negotiation. For example, a buyer in a seller’s market will want to be more conservative with their concession requests, because they’re less likely to get approved if the seller has multiple competitive offers. In markets where buyers have more leverage, things might be negotiated more in their favor.

Closing costs vary depending on loan type

Different loan types have different structures, which means closing costs can vary depending on the type of mortgage you get. A higher amount usually comes into play for buyers who are making a smaller down payment. In such cases, lenders often affix extra charges to the mortgage, as a sort of insurance to protect themselves in case these higher-risk buyers are delinquent or default on their payments. These are often due when you close on the property.

If you’re putting down less than a 20 percent down payment, you will likely have to pay an extra monthly fee for private mortgage insurance. Some lenders might require you to make an upfront PMI payment at closing, meaning you pay the full premium amount for the year all at once. And with a government-insured FHA loan, you’ll need to pay a mortgage insurance premium at the closing table, along with annual premiums thereafter.

Saving money on closing costs

While closing costs are normal for every real estate transaction, there may be some steps you can take to reduce the total amount you’ll pay.

• Buyers can ask for seller concessions, negotiating for the seller to pay some of their costs (often to cover the cost of necessary home repairs). They can also look for local or even federal assistance programs that can help with both down payments and closing costs. Many programs, often for low-to-moderate income earners or first-time homebuyers, provide grants or favorable loans to help qualified buyers.
• Sellers should also remember to negotiate — particularly regarding the real estate agents’ commissions. These fees are a home seller’s most costly expense, and even a small discount can save you thousands of dollars. That’s particularly true on more expensive homes, as the commission is a percentage of the sale price.

Next steps

A knowledgeable local real estate agent can offer valuable expertise throughout the entire buying or selling process. Your agent can help you understand and potentially negotiate your closing costs, taking much of the stress off of your plate as you finalize the deal.

FAQs

• Who typically pays closing costs?

  Both buyers and sellers usually have closing costs to pay, though the types of costs vary. For instance, buyers might pay an appraisal fee, mortgage origination fee, prepaid mortgage interest and homeowners insurance. Sellers often pay real estate agent commissions, title transfer fees, transfer taxes and property taxes.
  

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

  You’ll still incur some closing costs if you’re paying for a home with cash — but the amount will be much less than if you were financing the purchase, because there won’t be any lender or mortgage fees. You’ll still be responsible for real estate attorney fees, title and homeowners insurance and the cost of a home inspection.
  

• Do buyers or sellers pay more in closing costs?

  Sellers typically pay more in closing costs, mainly because sellers are the ones who cover the real estate agents’ commission fees. But, while a seller’s closing costs are often deducted from the proceeds of the home sale, buyers typically pay these costs out-of-pocket.
  

• Are down payments a part of closing costs?

  As a buyer, your down payment is not part of your closing costs. While your down payment is a portion of your home’s purchase price, your closing costs include other expenses, like appraisal fees, mortgage origination fees and the like. However, the size of your down payment can affect how much you pay in closing costs: If you put down less than 20 percent, you’ll likely have to pay for private mortgage insurance, and that may be payable at closing.