Closing costs can be a significant added expense for buying a home or other property. These extra costs are due at closing and they cover the various fees, commissions, and taxes due before the property can change hands. Usually, it’s around 3% to 6% of the total purchase price, which can amount to tens of thousands of dollars or more.
Most times, the buyer pays the bulk of closing costs and the seller only pays a small portion. However, there are some situations where just one party may be responsible for more of the closing costs. There are legal limits on what the seller can pay depending on the loan type and where you live. The limit of seller concessions is based on the loan amount and down payment as a percentage of the loan amount.
- What Are Closing Costs and Who Pays Them?
- How Much are Closing Costs for the Buyer?
- Buyer’s Closing Costs – Estimated
- Why Would a Seller Pay Closing Costs?
- Who Pays the Closing Costs on a VA Loan?
- Who Pays the Closing Costs When Selling a House By Owner?
- Who Pays the Closing Costs on a Land-Only Sale?
- Closing Costs By State
- The Bottom Line
What Are Closing Costs and Who Pays Them?
Closing costs are the additional costs due at closing that are above and beyond the agreed-upon purchase price. Think of them as the price for getting a mortgage and using the professional services of those involved in the process. Typically, these costs add up to about three to six percent of the total purchase price.
Buyers and sellers each have their own set of closing costs, and the seller’s costs are usually the highest.
Closing costs may include:
- Property inspections
- Loan application fee
- Attorney’s fees
- Land surveys
- Property appraisals
- Title searches
- Recording fees
- Obtaining credit reports
- Title insurance
- Loan origination fees
- Property taxes
- Homeowner’s insurance
- Escrow fee
- HOA transfer or estoppel fees
- Mortgage points
- Real estate commissions
- VA loan funding fee
Closing costs are disclosed (in writing) to both buyers and sellers and must be agreed upon before completing the transaction. If you’re the buyer and you’re applying for a mortgage loan, the lender is required to give you a loan estimate within three business days. This estimate will lay out the estimated total price for closing costs and the other specifics of your mortgage loan.
Of course, the closing costs may change some throughout the process, but the loan estimate will at least give you a rough idea of what to expect. Then, three days before your closing, you’ll receive a closing disclosure form from the lender.
This will give you the exact closing costs compared to what was estimated. Make sure that you look over the disclosure carefully for any charges you weren’t expecting.
Who Pays Closing Costs?
Both the buyer and seller will have their own portions of closing costs to pay. The buyer will usually pay more of the closing costs, but the seller will have to pay for their share of property taxes and fees that are required by the state or local regulations.
The seller will have to pay their own real estate agent’s commission, any taxes related to transferring the property’s title, seller’s title insurance, their share of property taxes for the year, HOA fees and fees related to transferring the HOA, seller’s attorney’s fees, and any credits toward closing that they agree to provide to the buyer.
In some transactions, the seller may agree to pay more of the closing costs than required to help secure the deal. Usually, this happens when it’s a buyer’s market (versus a seller’s market) or if the buyer pays close to or above the list price.
How Much are Closing Costs for the Buyer?
The buyer’s closing costs are usually higher than the seller’s. Buyers usually pay between 3% and 6% of the purchase price in closing costs. So, if you’re buying a home that’s priced at $250,000, you should plan on your closing costs being between $7,500 and $15,000.
The buyer’s closing costs will depend on the property’s purchase price, their geographic location, and how much of the closing costs the seller agrees to cover.
Some states have significantly higher closing costs, on average, but it usually has to do with how high the property taxes are in those areas. For example, in Washington D.C. the average closing costs are over $29,000. In New York the average is over $13,000.
Compare that to states like South Dakota where the average closing costs (including property taxes) were just barely over $2,000, or Missouri at $1,571, and you can see how much location impacts these costs.
Buyer’s Closing Costs – Estimated
|Purchase Price||Low-End Estimate||High-End Estimate|
Why Would a Seller Pay Closing Costs?
In some cases, the seller may agree to pay some or all of the buyer’s closing costs. However, there are often limitations on how much the seller can pay. These are usually referred to as seller concessions, and they can significantly reduce how much cash the buyer needs to set aside for closing.
The seller might agree to pay more of the property taxes, cover the appraisal fees, or even pay for mortgage points to help the buyer achieve a lower interest rate.
Usually, if the seller agrees to pay for closing costs, it’s because it’s a buyer’s market. That occurs when there’s more inventory for sale than there are buyers to purchase. In a buyer’s market, buyers have the advantage when it comes to negotiating real estate deals.
Another factor that may motivate a seller to pay more closing costs is if the buyer makes a higher offer on the purchase price. That can be helpful for buyers who may not have as much cash to pay up-front, but could qualify for a higher mortgage loan. In that case, the buyer would essentially be paying the closing costs over the life of the mortgage loan rather than shelling out the funds at closing.
In other cases, the seller may be highly motivated to sell. For example, if the seller needs the transaction to occur quickly, if they want to sell the property “as-is,” have a shorter closing period, or if the property has been on the market for a long time, they may agree to more concessions.
However, sellers are still limited on what they’re allowed to pay for even if they want or agree to cover more of the closing costs.
For FHA and USDA loans, the seller can only contribute up to 6% in concessions, and only 4% for VA loans regardless of the down payment amount.
What Are the Pros and Cons of the Buyer Paying Closing Costs?
There are upsides and downsides regardless of who pays the closing costs. It’s important to understand the impact of each so you can work through those parts of the negotiation with a buyer or seller.
Advantages of the Buyer Paying Closing Costs
When the buyer pays the closing costs, it can make for a better offer on the seller’s end. If the buyer pays closing costs, they typically offset the expense by offering a lower purchase price. If you’re a buyer competing with other bids, one way to stand out is to offer to pay closing costs.
An offer with fewer concessions and “asks” in the contract is typically more appealing to a seller than one that’s a couple thousand dollars higher but has many strings attached. A cleaner offer means there’s less of a chance for the deal to fall through later on.
Also, when sellers cover closing costs it’s usually because the buyer is making a higher purchase offer. In those cases, all parties run the risk of the appraisal coming in lower than the offer. Remember, no matter what you offer, the mortgage lender will not loan you more than the property is worth.
Disadvantages of the Buyer Paying Closing Costs
Most negotiations deal with the seller paying the buyer’s closing costs. As the party receiving the funds, they’re usually in a better position to have cash available at closing. However, a buyer that’s willing to cover those costs often has a better chance of bringing a winning offer.
There’s really no downside for the seller if the buyer agrees to pay the closing costs. When it’s the other way around it’s the seller making concessions for the buyer, so a deal that doesn’t have those strings is usually better for the seller.
The only disadvantage to the buyer is that they may be missing out on some extra seller concessions that could have been worked into the deal. If a buyer needs more cash available after closing for repairs, upgrades, or other move-in expenses, it might benefit them to have the seller cover closing costs and pay more in their mortgage over time.
However, if that’s not something that’s important to the buyer (say, if they’re also selling a home and will have some cash freed up from that deal), then there’s really no disadvantage for any party.
Who Pays the Closing Costs on a VA Loan?
For a VA loan, the closing costs will depend on the home’s purchase price and the specifics of your mortgage loan agreement. In general, these loans will have closing costs in the 3% to 5% range, so not much different than a traditional mortgage.
Just like a conventional mortgage loan, both the buyer and seller will have closing costs they’re responsible for. The difference is that the seller’s costs are capped at 4% of the purchase price. Still, they’ll have to pay for the real estate commission for both their and the buyer’s agents.
The portions of the closing costs that the buyer is required to pay include the VA funding fee, loan origination fee, appraisal fee, title insurance, and any discount points. There may be other fees the buyer is responsible for as well, but the lender will cover a few of them. For example, attorney’s fees for the closing may be covered.
The seller is required to pay for a pest inspection with a VA loan.
The benefit of a VA loan when it comes to closing costs is that there are limits on some of the fees for the buyer. That can help keep the closing costs lower than you’d find with a conventional mortgage.
Who Pays the Closing Costs When Selling a House By Owner?
There are many advantages to buying or selling a house by the owner if you have the know-how. Unfortunately, eliminating closing costs isn’t one of them. When dealing with a FSBO home, the same fees and rules apply when it comes to closing costs as you’d have with a home listed with an agent.
Just like with other transactions, both the buyer and seller will have closing costs they’re responsible for. Beyond that, you can negotiate to have either the buyer or seller cover additional expenses as part of the deal.
The only difference is that you won’t have to pay a commission to a listing agent for the sale. As a seller that can save you as much as 6% of the total price, which can amount to tens of thousands (or more).
Who Pays the Closing Costs on a Land-Only Sale?
Land-only sales are handled a little differently than home sales, but there are still closing costs to consider. Both the buyer and seller will have closing costs, but there’s room to negotiate how much each party will cover. In most cases, there are general or state-specific customs that guide which party pays for certain costs.
For example, escrow fees are typically covered by the buyer. However, in some regions the cost may be split between both parties. It’s possible (but rare) for the seller to pay for the escrow charges. Any transfer taxes are typically split equally between both parties. Recording fees are typically paid for by the buyer, but in some areas the seller is required to pay.
Any fees associated with a loan are typically paid for by the buyer. However, in some cases the seller will give concessions to the buyer to help them free up some cash for their down payment or land improvements after the purchase.
Costs associated with brokerage commissions are typically covered by the seller. Property taxes are charged to both parties depending on when the sale takes place and whether the taxes were already paid for the year.
Closing Costs By State
Geographic location plays a significant role in closing costs. How much buyers and sellers have to pay for closing, the rules and customs guiding who pays for what, and factors like property taxes and insurance all have huge impacts on how much cash is needed to close.
Who Pays Closing Costs in New York?
In New York, both buyers and sellers are responsible for certain closing costs. On average, sellers end up paying 8% to 10% of the sales price in closing costs, which are some of the highest in the U.S. For example, in some states sellers pay less than 1% in closing costs.
If you’re selling a home in New York, here are the closing costs you’ll be responsible for:
- Mortgage Payoff
- Property taxes (prorated)
- Loan reconveyance fee & recording fee
- Deed transfer tax (state tax)
- Local transfer tax
- Real estate agent commission (can be split, but typically in New York the seller covers both the buyer and seller’s agents’ commissions)
- Escrow fees (usually split between buyer and seller)
- Title search
- Attorney’s fees (seller’s attorney only)
In addition to the above fees, the seller may cover more closing costs if they choose. In some cases, a seller may agree to pay additional concessions in exchange for a higher offer or if they’re looking to sell the property quickly. Or they may agree to pay concessions to cover home repairs or upgrades.
On the other hand, the buyer can also request additional closing cost credits for some of the fees associated with closing. This is typical when the buyer may be limited in how much cash on hand they’ll have available for closing.
Who Pays Closing Costs in Ohio?
In Ohio, closing costs typically run between 2% and 5% of the total purchase price. Average closing costs are typically lower in the midwestern United States, and Ohio is no exception.
In Ohio, the buyer pays for all closing costs associated with the mortgage loan. So, loan origination fees, credit report fees, and mortgage points are all covered by the buyer.
When it’s time to open an escrow account, buyers and sellers typically split the fee, but that’s a cost that can be negotiated as to which party will cover it. The same goes for title insurance.
There’s no law in Ohio stating which party should pay for title insurance, so it’s another expense that can be negotiated during the deal. However, it’s customary in most rural counties that the buyer pays for the title insurance. If you’re dealing in the more urban counties, the seller typically covers those costs.
Inspections and appraisals are typically covered by the buyer, as their lender is normally the party requiring them.
Taxes related to transferring the deed (real estate transfer taxes) can be covered by either or both parties. However, in Ohio it’s customary for the seller to pay for this tax. Property taxes, on the other hand, must be paid by both parties based on what they owe for the year depending on the purchase date.
Real estate agent commissions are typically split by both parties if they both have an agent. However, if only one party has an agent they usually cover the commission.
Who Pays Closing Costs in South Carolina?
In South Carolina, the buyer and seller will both have closing costs, and the lender may also cover some of those expenses. On average, a home purchased in the state for $200,000 to $300,000 will have closing costs between $2,500 and $3,750.
Taxes are usually a major expense at closing. In South Carolina, the seller pays for their portion in the form of closing costs to the buyer and the buyer pays the full tax bill whenever they become due for that year.
Another expense specific to South Carolina is the attorney’s fee. The state requires that an attorney oversee the closing, so each party will have to pay for their representation. In some cases, you may be able to negotiate closing credits for this expense, but the seller will always have to obtain an attorney.
|Buyer Closing Costs||Seller Closing Costs|
|Attorney’s fees||Attorney’s fees|
|Title search||Broker or Agent fees|
|Property appraisal||Title insurance|
|Inspection fees||Deed recording tax|
|Loan origination fee||State deed stamps|
|Land survey fees||Prorated property taxes|
|Loan settlement fee||Document preparation fees|
|Prorated property taxes||Recording fees|
|Prorated HOA fees||Mortgage payoff amount|
|Credit report fees||Courier fees|
|Homeowner’s insurance||Prorated HOA fees|
Who Pays Closing Costs in Michigan?
Buyers and sellers both share the expenses for closing in Michigan. Like most states, each party will have certain costs they’re responsible for. For example, the seller normally pays for title insurance, title searches, transfer taxes, and recording fees.
Buyers will pay for anything related to their mortgage loan, their share of property taxes, insurance, inspections, and surveys.
Who Pays Closing Costs in Pennsylvania?
Pennsylvania has some of the highest closing costs in the country, especially if you include the cost for property taxes in the figures. The good news is that the costs are typically split between the buyer and seller, so one party doesn’t have to pay the whole bill. Even so, buyers should plan to pay more in closing costs than the seller.
Sellers typically pay about 1% to 3% of the purchase price in closing costs. They’ll normally cover things like title insurance, transfer fees, recording fees, and attorney’s fees.
The buyer, on the other hand, should plan to spend at least 5% in closing costs. They’ll normally pay for things like home inspections and surveys, title search, credit report fees, property appraisals, loan fees, and settlement fees.
It can benefit the seller to cover some of the buyer’s closing costs to move the property faster, especially in a buyer’s market. Or, if the property needs some work and you want to sell it “as-is,” closing credits can sweeten the deal.
Who Pays Closing Costs in New Jersey?
In New Jersey, both the buyer and seller will share the closing costs. The buyer can ask (or the seller can offer) to pay more of the buyer’s closing fees but there are limits on how much the seller can contribute depending on the type of mortgage loan.
The seller should typically plan to pay for real estate commissions, any transfer fees and taxes, and their attorney’s fees. They’ll also have to pay their share of property taxes for the year.
The buyer typically covers all closing costs associated with the mortgage loan, any property appraisals, inspections, surveys, and fees related to the title.
Who Pays Closing Costs in Connecticut?
Closing costs in Connecticut are average compared to the rest of the country, but a lot of what you’ll pay depends on where you live and the property taxes in the area. Still, both buyers and sellers should plan on contributing to closing costs in Connecticut.
Seller concessions are more typical in Connecticut (even in a seller’s market) than they are in some other states. So, if you’re selling, you should plan on covering some closing costs to benefit the buyer to remain competitive. On average, sellers contribute around $5,000 in concessions.
In any case, sellers in Connecticut typically pay these closing costs:
- Mortgage payoff
- Loan reconveyance fee & recording fees
- Prorated property taxes
- State/local transfer taxes
- Prorated HOA dues
- Agent commissions (typically sellers pay for both agents in Connecticut)
Who Pays Closing Costs in Florida?
In Florida, some closing costs are covered by the seller and others by the buyer. Throughout the state, there are different local customs depending on which county you’re in, but most of the costs may be negotiated through the buying process.
Like many other states, the seller typically covers the title search, property taxes for their portion of the year, real estate commissions and fees for the listing agent, estoppel fees, documentary stamps, and other fees related to the property.
The buyer is usually responsible for title insurance, but in some areas, the seller will cover it. In many counties throughout southern Florida, the buyer traditionally pays for title insurance. The fees charged by the title company for closing are also traditionally covered by the buyer.
No matter where you’re located, there’s some room for negotiation in who pays which closing costs. When buyers or sellers offer to pay more than their share, it can often sweeten the deal and help ensure that it goes through smoothly.
Whether you’re in a buyer’s or seller’s market will impact which side typically carries more of the burden. And, certain loans cap how much a seller can put toward closing.
Having a knowledgeable agent to guide you through the negotiation process can help ensure you get the best deal possible and don’t pay more than you have to when buying or selling.
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