What Are Closing Costs?
Closing costs are what you pay in taxes, fees, and service costs when you complete a home sale. Closing costs vary for the seller and the buyer; however, in general, each party in the real estate transaction pays for some portion of the total closing costs.
If you’re interested in selling your home, it’s crucial to understand how much you may have to pay in closing costs. The more you know about the costs, the better it will prepare you to close the deal and sell your house.
Seller closing costs are variable, and several factors influence the average closing costs for any transaction. The influencing factors that may impact your transaction include, but aren’t limited to, the location and condition of the property and whether you’re refinancing or selling your home.
What follows are answers to your most frequently asked questions about the depth and breadth of closing costs.
How Much Are Closing Costs For A Home Sale?
Closing costs are fees you pay for taxes and services required to complete your home sale.
Closing costs range from 1% to 3% of the total home sale price. That means if your home sale was for $440,300, the median sales price in the US, then you would pay $4,403 to $13,209. That price range does not include the cost of agents’ commissions.
In most real estate transactions, the buyer pays for their closing costs, and the seller pays for their own, including the real estate agent commissions or both your agent and the buyer’s agent. When you account for seller closing costs and real estate agent commissions, you can expect to pay between 6% and 10% of the home’s sale price in closing costs.
That means for a $440,300 home sale, you’d be paying $26,418 to $44,030.
Another factor that you’ll have to pay is your outstanding mortgage amount. As the seller, you’ll get paid by the buyer or the lender via wire transfer. The profit you make from your home sale is the amount the buyer or lender wires you minus any outstanding mortgage debt.
To streamline the home sale process, a third-party escrow company handles the closing details and assists with transactions. The escrow company typically manages the money in an escrow account, title documents, and other things necessary to complete the home purchase. Escrow fees are generally included in the closing costs tabulation.
How Much Are Closing Costs For Buying A Home?
There are two sets of closing costs, one for the buyer and one for the seller. For a buyer, typically, closing costs run anywhere from 3% to 6% of the home’s sales price or the loan amount they get from their lender.
The buyer is usually responsible for most closing costs, but variables are involved. For instance, the actual amount of the buyer closing costs are impacted by the loan origination fees, processing fees, title insurance, underwriting fee, and escrow.
Seller closing costs include, but are not limited to, transfer taxes, attorney fees, escrow fees, title insurance, and in most cases, real estate agent commissions.
It’s critical to remember that each state and transaction are unique and affect the total amount you, or the buyer, actually pay in closing costs.
Average Closing Costs For Buyers
ClosingCorp, a data mortgage technology company, estimates that the average closing cost to buy a home in the United States is $3,860, excluding transfer fees and taxes, and $6,905, including transfer fees and taxes.
Where you live dramatically impacts your closing costs. For instance, ClosingCorp reports that if you live in New York, you may be on the hook for $16,849, whereas if you live in North Dakota, the closing costs are much lower at $2,501.
It’s also helpful to consider closing costs regarding the purchase price. For buyers, the typical closing costs are, on average, 2.5% (2% to 5% )of the loan cost.
The median home sales price in the United States is $440,300:
- On average, a buyer will pay $11,000 for a $440,300 home.
Average Closing Costs for Sellers
Your specific closing costs depend on your location, home price, and seller concessions. To give you an idea of how much closing costs can be, consider the median home sales price in the United States is $440,300.
For sellers, the standard closing costs are, on average, 1.5% (1% to 3%), according to Realtor.com. On average, a seller will pay between $4,400 to $13,210 for a $440,300 home.
The most significant expense for sellers is the real estate agent commissions. Commissions can range from 3% to 6% of a home’s value. That’s in addition to the closing costs.
Here is a list of what those closing costs typically entail for the seller and how much they will cost:
| Cost | Average Fee |
|---|---|
| Attorney fees | $500 to $1,000 (depending on state) |
| Credits toward closing | Negotiated between seller and buyer |
| Escrow fees | Up to 1% of the home’s value; $500 to $5,000 |
| Property taxes | Depends on location |
| Real estate agent commissions | Up to 6% of the home sale |
| Seller inspection fee | $500 to $1,000 (optional) |
| Repair, staging, and moving | Highly variable |
| Title insurance fees | $500 to $1,000 (depending on purchase price) |
| Mortgage payoff | The average mortgage balance is $220,380 |
| Transfer tax and recording fee | Varies by state, but average 1% of home value |
| HOA fees | $100 to $500 (varies by community) |
Suppose you sell your home for $440,300. You might pay between $239,990 and $253,200 in total closing costs. That means your net proceeds would be between $187,100 and $200,310.
One note, the closing costs vary by state, and your home’s sale price, real estate agent commission, and location significantly impact your final number.
Who Pays Closing Costs?
Buyers usually pay the most closing costs, but there are seller closing costs also. The most expensive closing cost for the seller is usually realtor fees. The buyer may also negotiate and receive seller’s commissions like homeowner’s insurance, property tax escrow deposits, insurance premiums, and per-diem interest.
As the seller, you are never required to pay for the buyer’s closing fees. But, in a buyer’s market or if you are motivated to complete the home sale, you may decide to cover closing costs. In general, the buyer pays for the following closing fees:
- Application fee: Depending on the amount and type of loan, mortgage lenders sometimes charge borrowers a loan application fee to process the loan request.
- Appraisal fees: When a buyer completes a loan application, the mortgage lender orders an appraisal through a third party. That third-party appraiser inspects the home and reports the estimated home value to the lender. They also check the house for accessibility, habitability, and safety. This is also called the home appraisal.
- Discount points: Discounts lower the buyer’s interest rate in exchange for paying a fee upfront.
- Escrow account: The account holds money to pay property taxes, premiums, homeowners insurance, and mortgage insurance.
- Private mortgage insurance (PMI): Private mortgage insurance premiums are a type of mortgage insurance a buyer may have to pay if they have a conventional loan. If the buyer’s down payment is less than 20% of the home’s purchase price, then PMI is usually required.
- Title insurance policy: Mortgage lenders usually require a potential homebuyer to get title insurance if there are ownership issues. This is also called a lender’s title insurance policy.
- Title search: If the buyer is not buying a new home, then a title company searches property records for things that might affect the closing date, including liens, judgments against the property, or local government easement or restrictions.
- Credit report fee: The lender may cover the cost of checking a borrower’s credit score, but in some cases, they don’t.
- Underwriting fee: This is sometimes called an administrative fee or processing fee. It includes the cost of evaluating a buyer’s ability to make a monthly mortgage payment.
- Mortgage loan origination fee: Lenders may charge a fee for originating or creating the loan. This is called an origination fee and can cost about 1% of the loan’s value. These fees will be outlined in the buyer’s closing disclosure.
- Document preparation and recording fees
- Notary fees
- Pest inspection fee
- Survey fee:
- Tax proration: Home buyers sometimes have to pay upfront taxes. This prepaid tax is usually a six-month or year’s worth of property tax.
- The interest rate on a new loan
- Roofing and property home inspection fee
- Transfer taxes
What Is Included in Closing Costs?
There are several closing fees that sellers may pay, including, but not limited to:
- Real estate agent commission: You usually pay 3% to 6% of the home’s purchase price on the seller and buyer’s agent fees.
- Title search: This ensures you are the property owner; there are no liens or judgments on the property.
- Transfer taxes: This tax is charged by the state or local government and is required to complete the sale (transfer) of the property from one owner to another.
- Escrow fees: Escrow fees are a portion of the closing fees associated with a real estate transaction.
- Homeowners Association (HOA)fees: These fees can vary depending on location and the type of property involved. It would help if you let the buyer know about any HOA fees you pay.
- Seller inspection: This optional inspection may help you move along the transaction and highlight potential areas your buyer may want to negotiate with you on price. The buyer is not obligated to accept your inspection and may opt for their own.
- Attorney fees
- Property tax
- Seller credits toward closing costs
- Title insurance
- Appraisal fees
What is Not Included in Closing Costs?
An assortment of fees and costs are associated with selling a home but are not considered closing costs. Those costs include the following:
- Home improvements: You may want to improve your home’s price. One way to do that is to invest in home improvements. Cosmetic fixes, landscaping, and painting are examples of home improvement you might undertake, but they are not considered closing costs.
- Early loan payoff fee: Sometimes, a lender will charge you an early payment fee for paying off your home loan early. This is a one-time payment made at the home closing.
- Moving costs: Moving costs are not included in your home purchase price. These costs can be in the thousands.
- Staging costs: Real estate agents might encourage you to stage your home to increase the purchase price.
When Do You Pay Closing Costs?
Closing costs are due when the buyer’s funds are available for payment, and the closing documents are signed. Typically, this occurs on the mortgage closing day. The proceeds from the sale deduct the closing costs and what remains is your profit. If you owe more than your home is worth, you’ll have to pay the closing costs in cash.
You might be able to deduct some closing costs, fees, and taxes, so keep your paperwork handy for tax season.
Can You Avoid Paying Closing Costs?
Yes, you can avoid paying some closing costs. The primary way to avoid closing costs is to sell your house to an off-market buyer. Off-market or cash buyers buy your house for a fixed price. The price includes the closing costs, transaction costs, and other fees associated with selling your home. In addition, you won’t need to worry about doing the paperwork; the title company, the cash buyer, works with handles it for you.
Other ways you can avoid closing costs include:
- Shop around for attorneys and escrow companies: Attorney fees vary, and so do escrow companies; it’s worthwhile to research and find the right mix of value and expertise for your situation.
- Title insurance reissue rate: The owner’s title insurance protects the lender and the buyer after closing the deal. If you’ve lived in your home for several years, you may be able to secure a reduced rate on your owner’s title insurance policy.
- Sell your home with a discount realtor: You can try to list your home with a broker who has reduced rates or do it For Sale By Owner (FSBO).
How Are Closing Costs Calculated?
Closing costs depend on your home’s location, price, and condition. There are a variety of state and local government factors that affect the closing costs for each seller.
It may be helpful for you to use an online calculator or a net proceeds calculator to see how much you might make if you sell your home.
Calculating your potential closing fees is simple. You input items’ costs (or our best estimate), including real estate agent commissions, attorney fees, title insurance, escrow, property taxes, and other fees.
Closing Costs Calculator
Conclusion
Closing costs are the costs buyers and sellers must pay as part of their real estate transactions. Generally, the buyer pays for the bulk of closing costs, but the seller is also responsible for a significant chunk of closing costs.
Typically, the most significant portion of a seller’s closing cost expense comes from real estate agent commissions. If you want to mitigate the cost of selling your options as a seller home, you have. The first is to sell to an off-market buyer; they will provide a fixed price to you that covers all closing costs.
Second, you can shop around and do extensive research on attornies and companies that provide services.
Third, you might sell your house FSBO or use a discount broker.
Of your three options, selling your home to an off-market buyer is probably the quickest and most pain-free option you have available. They will be able to pay you cash for your home, prevent you from going through the arduous process of getting your home ready for sale, and do the paperwork for you.
