Understanding Closing Costs: Who Pays What?

When buying or selling a home, closing costs are an unavoidable expense and can be a source of confusion.  We’ll break down the closing costs of a house, which items are closing costs to seller, and what to expect in terms of closing costs as a buyer.

Closing costs: what is included?

Closing costs are fees and expenses paid at the closing of the transaction and can include appraisal fees, title insurance, taxes, and loan fees.   The estimate for closing costs varies depending on the price of the home, location, and other factors. Clearly understanding closing costs upfront is essential to a successful outcome.

Who pays for what in a real estate transaction?

Both the buyer and seller are responsible for paying certain closing costs. However, the specific costs and responsibilities can vary depending on the broker’s customs and terms of the sale.  It’s important to review the terms of the sale and work with a trusted real estate agent or attorney to understand who is responsible for paying each cost.

Closing costs when selling

Sellers typically have fewer closing costs than buyers, but the amount a seller pays is often higher due to the real estate commission paid to real estate agents.    Additionally, sellers will pay for prorated property taxes, a title insurance policy, and any outstanding liens against the property.

How much closing costs a buyer pays is negotiable

Buyers closing cost estimates can include a long list of closing costs which can include the appraisal fee, loan origination fees, underwriting fees, extended coverage for title insurance, and a higher closing fee.   The closing costs paid by a buyer on top of a down payment can stretch a buyer thin at closing.  To lower the large amount of money a buyer brings to closing a savvy buyers’ broker will negotiate for the seller to pay all or part of the buyer’s closing costs.

No down payment AND no closing costs

We help our buyers secure no down payment financing and negotiate for the seller to pay our buyer’s closing costs to allow a buyer to buy a home without the large up-front costs.  This makes homeownership available to most renters who would like to own a home.

Pre-paid items

There is one more piece to this closing puzzle and that is the buyer’s pre-paid items.  These include the annual premium for hazard insurance on the home and could include up-front HOA reserves or other items.   We often negotiate for the seller to also pay for the pre-paid items for our buyer.  However, some no-down payment programs require that a buyer make a minimum contribution of $1,000 to the transaction which is typically applied to pre-paid items.