When completing the mortgage loan process, it is important to pay close attention to the closing costs. These costs can vary by state, type of loan, and other factors, but generally, they range from 3% to 5% of the home's purchase price.
Closing costs are unavoidable in most cases, but some 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, sellers might be convinced to pay the buyer's closing costs to facilitate a sale in a buyer's market. 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 seller's responsibility. If the seller used a real estate agent to sell their home, they would need to pay the agent a commission. This amount is a percentage of the home's sale price. Commissions can vary, but 6% is the standard charge. This 6% is 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 those fees. Unpaid property taxes for the home can be credited to the buyer, equal to the number of days the seller owned the home.
Seller contributions can be used to cover the upfront fees on loans backed by the government. This includes upfront insurance premiums 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 to process the loan paperwork. Credit report fees could also be passed along to the buyer, as the lender must check their credit history. The purchased home must typically be appraised to verify its value and inspected to ensure it meets certain living conditions. These appraisal and inspection fees are passed on to the buyer in most cases.
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 a buyer pays will also vary based on the home's location. 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 sellers 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.
Other negotiating tips include offering a quick close. If the seller is in a hurry to leave the home, a 30-day close can be more enticing than a 60-day one. 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.
