By Matt Allen
Vice President, Portfolio Lending (NMLS #415037);

Who Pays for Home Loan Closing Costs?

Oct 02, 2019

  • Home Loans

When going through the mortgage loan process, it is important to pay particularly close attention to the closing costs. These costs can vary by state, type of loan, and other factors, but in general, they range from  3%-5% of the home's purchase price. 

Closing costs are unavoidable in most cases, but some of the charges can be negotiated. Both the buyer and the seller will pay closing costs. The buyer usually pays the bulk, since they are mostly related to financing the mortgage on the home. However, in a buyer's market, sellers might be convinced to pay the buyer's closing costs to facilitate a sale. During a seller's market, it’s not likely that a seller will agree to this.

Closing Costs that Sellers Pay

Some closing costs are the responsibility of the seller. If the seller used a real estate agent to sell their home, they would need to pay a commission to the agent. This amount is a percentage of the sale price of the home. Commissions can vary, but 6% is the standard charge. This 6% is then split between the seller’s and buyer’s agents.

If the seller hired a real estate attorney during the selling process, they would also have to pay for those fees. Unpaid property taxes for the home can be credited to the buyer, equaling the number of days the home was owned by the seller.

Seller contributions can be used to cover the upfront fees on loans that are backed by the government. This includes upfront mortgage insurance premium on an FHA mortgage (must cover 100%) and VA funding fees (up to 100%).

Other costs a seller might have to pay include:

  • Title insurance premiums
  • Transfer taxes and recording fees
  • Home warranty premiums
  • Prorated taxes and HOA dues

Closing Costs that Buyers Pay                                   

A buyer has a much more comprehensive list of closing costs, and it's recommended to budget for 3%-5% (in most cases) of the home's purchase price.

It’s common for lenders to charge buyers a loan origination fee for processing the paperwork for the loan. Credit report fees could also be passed along to the buyer, as the lender must check their credit history. The home that's being purchased typically must be appraised to verify its value and inspected to ensure it meets certain living conditions. In most cases, These appraisal and inspection fees are then passed on to the buyer. 

Other closing costs that might be included are:

  • Attorney fees
  • Discount points
  • Survey fees
  • Lender's title insurance
  • Title search fees
  • Escrow deposits
  • Recording fees

The fees that a buyer pays will also vary based on the location of the home. For instance, in states with high property taxes, the amount you must pay in prepaid escrow deposits can be much higher.

Negotiating Closing Costs as a Buyer

It's tough for buyers to convince a seller to pay their closing costs. One way a buyer could accomplish this is by offering a higher purchase price on the home, in return for the seller paying some of the closing costs. The type of loan can affect the amount that a seller can pay on the closing costs. 

Other negotiating tips include offering a quick close. If the seller is in a hurry to get out of the home, a 30-day close can be more enticing than a 60-day close. Making fewer demands with your offer might also make a seller more willing to pay your closing fees. A buyer who wants just closing fees paid can be more attractive than a buyer who requests new carpeting, roof, and other repairs in their offer.

If you have more questions about what costs the buyer and seller pay on closing, NASB can help. Call our experts at 855-465-0753.