Who Pays Closing Costs?
When you're buying or selling a home, there's a lot to think about. Of course, the big things like the purchase price and down payment (if you're a buyer) or repairs and renovations (if you're a seller) come to mind right away. But there's another important aspect of the process that can't be overlooked: closing costs. These are the expenses associated with finalizing a real estate transaction and they can add up quickly. But don't worry, Unreal Estate is here to break down who pays closing costs and how much you can expect to pay.
When it comes to closing costs, both buyers and sellers typically pay some. The amount each party will pay can vary depending on a number of factors including the price of the home, the type of mortgage the buyer has, the professionals involved, and the location (state) of the home. Of course, the specifics of the transaction can also impact who pays what. While certain closing costs have traditionally fallen on one party or the other, in home sales (as in many contractual agreements) many things can be open to negotiation.
There's no set number when it comes to closing costs, but there is a general rule of thumb. Sellers can expect to pay between 6% and 10% of the home's total purchase price in closing costs, while buyers typically pay slightly less, around 2% to 5% of the home's sale price. It's worth noting that closing costs for sellers are often deducted directly from the home sale proceeds, while buyers typically pay their portion out of pocket.
For example, if you're buying a home for $250,000, your closing costs might range from $5,000 to $12,500. If you're selling the same home, your costs could be anywhere from $15,000 to $25,000. Unfortunately, you often don't know the final number until you receive a closing statement or settlement statement, roughly three business days before closing day. This delineates all the closing costs in black and white. Sellers, though, often get a heads-up earlier if their agent has prepared a seller’s net sheet for them — an itemized breakdown of all of the closing costs and an estimate of the sum they will actually receive (or net) after the final purchase contract is signed.
As a seller, there are a few types of closing costs you should be aware of. These include:
Realtor commissions: The compensation that the buyer's and seller's agents receive for the home sale. Sellers typically pay both commissions, which are a percentage of the final purchase price.
Title fees: The costs associated with transferring the home's title from the seller to the new buyer.
Homeowners association fees: If the home is in a community with a homeowners association (HOA), any outstanding HOA fees need to be paid at the closing.
Property taxes: If there are any unpaid property taxes on the home, the seller will be responsible for bringing those current as of the amount owed at the time of closing.
Buyers also have a few types of closing costs they'll need to be prepared for. These include:
Attorney costs: Real estate attorneys often review title documents and contracts and pull together closing documents. They typically charge by the hour, although there may be set fees for certain tasks like composing the purchase and sale agreement.
Home inspection fee: If you choose to have a home inspection to assess the property's condition, you'll pay the inspector's fee at the closing table. This fee can range from a few hundred to a few thousand dollars, depending on the size and complexity of the home.
Appraisal fee: The cost of appraising the property to determine its value. This fee is typically paid by the buyer, but it can be negotiated in some cases.
Points: Points are a form of prepaid interest on the mortgage. They are calculated as a percentage of the loan amount and paid at closing. The more points you pay, the lower your interest rate will be.
Mortgage origination fee: This is a fee charged by the lender for processing the loan. It can be a flat fee or a percentage of the loan amount.
Closing costs may seem overwhelming at first glance, but understanding who pays and how much can help in budgeting and negotiations. As with any big purchase, it's always best to be prepared and to have a general idea of what to expect. Here at Unreal Estate, we're dedicated to providing resources and guidance for understanding and navigating the closing cost process. With our help, you'll be able to walk into your closing with confidence and a clear understanding of the costs associated with your new home.
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