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House for Sale

Understanding Closing Costs: Who Pays What?

When buying or selling a home, many people focus on the big numbers—purchase price, down payment, or loan amount. But when it’s time to close, there’s another crucial element that often surprises first-time buyers and sellers: closing costs.

So, what exactly are closing costs, how much should you expect, and more importantly—who pays what? Let’s break it down.

Table of Contents

What Are Closing Costs?

Closing costs are the fees and expenses paid at the end of a real estate transaction, when the property officially transfers ownership. These costs cover services like loan processing, title searches, appraisals, taxes, and legal paperwork.

Typically, closing costs range from 2% to 5% of the home’s purchase price—a significant amount that buyers and sellers should plan for in advance.

Common Closing Costs

Here are some of the most common expenses you’ll encounter at closing:

For Buyers:

  • Loan Origination Fee – Charged by the lender for processing the loan.
  • Appraisal Fee – Covers the cost of assessing the home’s market value.
  • Credit Report Fee – Paid to pull your credit history for loan approval.
  • Title Search & Title Insurance – Ensures the property has a clear ownership history.
  • Escrow Deposits – Prepaid property taxes and homeowners insurance.
  • Attorney Fees (in states where required).

For Sellers:

  • Real Estate Agent Commissions – Usually the largest cost, typically 5%–6% of the sale price.
  • Title Transfer Fees – Covers paperwork for transferring ownership.
  • Outstanding Property Taxes or HOA Dues – Must be paid at closing.
  • Concessions – If negotiated, sellers may contribute toward buyer’s closing costs.

Who Pays What?

While it varies by state and negotiation, here’s a general breakdown:

  • Buyers typically pay: loan-related fees (appraisal, underwriting, credit report), title insurance (lender’s policy), inspection fees, escrow deposits, and recording fees.
  • Sellers typically pay: agent commissions, transfer taxes, prorated property taxes, and sometimes title insurance (owner’s policy).
  • Negotiated Costs: In a buyer’s market, sellers may agree to cover some of the buyer’s closing costs to sweeten the deal.

Can You Reduce Closing Costs?

Yes! Here are a few strategies:

  1. Shop Around for Services – Compare fees for title companies, insurance, and lenders.
  2. Negotiate with the Seller – Ask if they’ll cover part of your costs.
  3. Look for Lender Credits – Some lenders offer reduced upfront costs in exchange for a slightly higher interest rate.
  4. Review the Loan Estimate – Always double-check for unnecessary or duplicate fees.

Final Thoughts

Closing costs may not be the most exciting part of buying or selling a home, but they can make a big difference in your overall budget. By understanding who pays what and planning ahead, you’ll avoid last-minute surprises and feel more confident on closing day.

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