Whether you’re in the process of purchasing or selling a home, it’s a good bet that you’ve heard about closing costs. But what does it mean? Put simply, the term refers to any fees required in order to close on the sale of a home. Typically, these costs range between 2% and 7% of the purchase price. So $10k-$35K on a home that sold for $500,000.
That’s a lot of money. You might be wondering for what purpose these fees are charged. If you’re wondering how much it will cost you, personally, you’re in luck. We’ve broken down some of the most common closing costs on each side of the transaction.
Closing Costs For The Seller
The buyer and seller typically split closing costs; however, the seller can be expected to pay between 1% and 4% of the purchase price of the home in fees. This percentage if sometimes higher if he or she agrees to cover a portion of the buyer’s expenses as part of negotiations. These fees are deducted from the seller’s proceeds from the sale of the home and include:
Generally, the seller is responsible for paying any commissions fees owed to agents on both sides of the transaction. This fee is around 6% of the home’s sale price and is split between the listing agent and the buyer’s agent.
Prorated property taxes & HOA Fees
Just like you pay property taxes annually, at settlement, you’ll be charged a pro-rated amount for the number of months you lived in the home that year. The amount you can expect to pay will vary, depending on how much you typically pay in property taxes and how late in the year you’ve settled. The same will be done for any relevant HOA or condo fees.
Real estate transfer taxes
Depending on where you live, you may also be required to pay a state and county real estate transfer tax. Usually, these range between 0.1% and 1% of the home’s purchase price.
Buyer credits and repairs
During inspections, you may have negotiated with the buyer to have some repairs completed prior to closing or give them credit towards having the repairs completed after closing. If the repairs were paid in advance, you simply have to show proof in the form of a receipt.
Title insurance fees
In some states, the seller is responsible for paying for the title search, which ensures that the buyer will own the property free and clear at settlement. Additionally, the seller might be responsible for covering the cost of the insurance policy to go with it. This typically runs between $1,000 - $2,000 dollars.
If you had an attorney by your side at settlement or reading over documents for you along the way, you’ll be responsible for those fees, as well.
Closing Costs For The Buyer
As the buyer, you’ll have a choice in how you handle your closing costs. You can pay for them upfront and out-of-pocket, or you can choose to have them rolled into your mortgage to be paid out over time. Though it might not put you in the strongest bargaining position, you also have the option of asking the seller to cover some of your costs which include:
Loan processing fees
The bulk of a buyer’s closing costs go to loan processing fees. Some of them, like a credit check fee and a loan application fee, might total less than a hundred dollars. However, loan origination fees, or fees that the lender gets paid for processing the loan and the underwriting fee are more. In particular, loan origination fees typically amount to 1%-2% of the value of the loan.
Home inspection fees
If you chose to conduct a home inspection or any other type of inspection, you’ll need to pay for those at closing. You can expect to pay a few hundred dollars for each one.
If you’re financing your purchase, the mortgage company will likely require you to have an appraisal done to determine its fair market value. This will run you a few hundred dollars and be paid at closing.
Title search and insurance fees
In some states, the buyer is responsible for their own title search and insurance fees. If that’s the case in your state, you can expect to pay $1,000 to $2,00 for the service.
Attorneys are not required to close on a home; however, if you have one present or you had one read over documents for you along the way, you’ll be responsible for paying those fees.