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Who pays closing costs when you buy a home?

Closing costs are expenses related to obtaining a mortgage and closing a home purchase or refinance. They’re separate from the sale price of the property. Are you buying or selling a home and wondering who pays closing costs? Both buyers and sellers are expected to pay their share. If you’re a borrower, how much you pay depends on your mortgage type and where you live.

What are some examples of borrower closing costs?

Typically, a buyer should expect to pay all home loan-related fees, ranging from 2% to 5% of a home’s value. U.S. homebuyers of single-family homes spend $6,837 on average for closing costs, including taxes.

So there are no big surprises on closing day; lenders will provide a Loan Estimate with estimated closing costs after a borrower submits a loan application. While the actual expenses aren’t the same for all home purchases, here are some standard examples of the property, loan and third-party fees that most buyers will pay.

  • Appraisal fee

    Lenders typically require a professional appraisal on the property during a purchase or a refinance transaction. This helps determine fair market value and the amount of loan-to-value. For homebuyers, this also helps to ensure they aren’t paying too much. Depending on the property type and location, the cost of a home appraisal will vary.

  • Homeowner’s insurance

    Buyers may be required to pay the annual homeowner’s insurance premium, plus two or three months’ payments in advance to set up an escrow account. The average cost of homeowners insurance is $1,249 per year or $104.08 per month.

  • Loan origination fees

    The lender charges loan origination fees to cover the cost of processing your loan application as well as underwriting and funding the loan.

  • Private mortgage insurance (PMI)

    If you buy a home with less than a 20% down payment, some lenders will require the first month’s PMI at closing.

  • Property tax

    When homeownership transfers to the buyer, so does the responsibility for paying property taxes. If the seller pre-paid the entire year of property taxes, the buyer generally pays a prorated portion of the taxes for the remainder of the year. In general, the amount of property tax can be estimated by multiplying the property tax rate by the property’s current market value.

  • Recording fees

    A county fee for legally recording the deed of trust and other documents related to a mortgage. According to the Home Buying Institute, the national average is $125.

  • Settlement agent fees

    Cover the office handling the exchange of money and documents—usually by a title company or attorney.

  • Other loan-related one-time fees

    Credit reporting and title fees may all be included in borrower closing costs.

  • Optional discount points

    Points are optional pre-paid interest charges on a loan in exchange for a lower interest rate. Each point is equal to 1% of the total loan amount. Borrowers who choose to pay discount points can lower their monthly mortgage.

Is there a difference between buyers’ and sellers’ closing costs?

While buyers pay fees related to obtaining a mortgage and closing a home purchase, sellers pay real estate commissions and fees associated with the transfer of their property. Here’s an overview of typical closing costs for sellers.

  • Real estate commission

    The real estate commissions for both the buyer’s and seller’s agent are the biggest fees sellers should expect to pay. This expense typically averages 5.5% to 6% of the sale price.

  • Transfer tax

    This tax is paid when the title for the home transfers from the seller to the buyer. According to Zillow, it varies by location. For example, in Denver, Colorado, the transfer tax amount based on median home value is $36. In Seattle, Washington, it’s $8,654.

  • HOA transfer fee

    For homes with a homeowners association, sellers may have to pay a fee to transfer ownership records to the buyer.

Closing costs vary by state

Closing costs and who pays them vary widely by state or county. In Missouri, they average less than 1% of the home’s sale price with taxes, while in Delaware, the average is 5.68%. To better prepare for closing costs, borrowers should connect with a local loan officer early in the homebuying process to budget accordingly. Sellers should contact a real estate agent. These examples highlight a few regional differences in what’s included and who pays closing costs on a home.

Who pays closing costs in California is different in the north and south

The Golden State ranks in the top ten of highest average closing costs with taxes. Believe it or not, the custom for who pays components of closing costs in California is different in the north and the south.

  • Title insurance protects the buyer from problems or errors with the property’s ownership records. The California Department of Insurance notes that sellers pay title insurance for the homeowner’s policy in southern California. At the same time, this fee is sometimes split down the middle in northern California.
  • Traditionally, the seller pays the real estate transfer tax in the south, while the buyer pays it in the north.
  • Who pays escrow fees depends on the city.
Texas closing costs may include a property survey

As a seller in Texas, you can anticipate paying for a municipal lien search to look into unrecorded property issues that aren’t shown in a typical title search. Texas lenders may also require the buyer to pay for a property survey to determine the property’s boundaries.

Delaware splits real estate transfer taxes

Homebuyers in most states should expect to pay real estate transfer taxes in their closing costs. Transfer taxes may also be known as a real property transfer, realty transfer, recordation, documentary, conveyance or a deed transfer tax. In Delaware, the buyer and seller are supposed to split the tax.

Real estate attorneys are essential for closing in Connecticut and Kentucky

Some states like Connecticut and Kentucky require paying a licensed attorney to conduct real estate closings. While in Louisiana and North Dakota, a licensed attorney must examine and certify the title.

Intangible taxes paid by borrowers in Florida and Georgia

Similar to the transfer tax collected in other states, Florida and Georgia impose a one-time intangible tax on a mortgage. The borrower typically pays this tax.

Pest inspection fees depend on the type of loan

In addition to a home appraisal, some states require a termite inspection for a home sale. Who pays this fee depends on the type of loan.

Average closing costs by state

Ranked from the highest average total closing costs with taxes, ClosingCorp has provided its most recent closing cost data. Washington, D.C., Delaware, New York and Washington have the highest average closing costs with taxes. Conversely, Kentucky, Wyoming, North Dakota, Indiana and Missouri have the lowest. While these average closing costs do not denote who pays closing costs on a home, they will give you an idea of what you can expect as a total for the purchase.

State Average home sales price Average total closing costs with taxes Average total closing costs without taxes Percent of sales price with taxes
Washington, D.C. $753,631 $30,352 $6,524 4.03%
Delaware $313,899 $17,831 $3,848 5.68%
New York $520,460 $17,582 $6,301 3.38%
Washington $557,455 $13,910 $4,804 2.50%
Maryland $386,810 $12,056 $3,975 3.12%
Pennsylvania $236,906 $9,753 $3,241 4.12%
Connecticut $418,948 $8,849 $4,131 2.11%
Florida $368,560 $8,551 $4,484 2.32%
California $779,838 $8,219 $5,773 1.05%
New Hampshire $332,880 $8,162 $2,795 2.45%
New Jersey $447,175 $7,966 $4,204 1.78%
Hawaii $777,764 $7,559 $5,977 0.97%
Massachusetts $592,875 $7,095 $4,479 1.20%
Nevada $410,263 $6,504 $4,328 1.59%
Vermont $358,930 $6,373 $3,462 1.78%
Virginia $287,233 $6,269 $3,192 2.18%
Illinois $282,433 $5,987 $4,791 2.12%
Michigan $200,331 $5,704 $3,501 2.85%
Utah $465,574 $4,751 $4,751 1.02%
Rhode Island $392,302 $4,683 $3,053 1.19%
Maine $320,185 $4,400 $2,848 1.37%
Oregon $448,156 $4,392 $3,935 0.98%
Ohio $202,147 $4,256 $3,376 2.11%
Idaho $402,043 $4,101 $4,101 1.02%
Minnesota $282,664 $4,054 $2,627 1.43%
Texas $294,899 $3,946 $3,946 1.34%
Colorado $520,372 $3,895 $3,812 0.75%
Arizona $395,395 $3,876 $3,876 0.98%
Tennessee $262,382 $3,869 $2,655 1.47%
Georgia $283,380 $3,768 $2,859 1.33%
Louisiana $220,594 $3,629 $3,301 1.65%
Alaska $347,089 $3,576 $3,576 1.03%
New Mexico $306,594 $3,489 $3,489 1.14%
South Carolina $295,186 $3,43 $2,495 1.16%
Wisconsin $225,039 $3,424 $2,658 1.52%
West Virginia $190,948 $3,393 $2,468 1.78%
South Dakota $208,904 $3,064 $2,806 1.47%
Montana $381,220 $3,055 $3,055 0.80%
Alabama $209,562 $2,994 $2,629 1.43%
North Carolina $296,206 $2,970 $2,425 1.00%
Oklahoma $177,778 $2,938 $2,549 1.65%
Mississippi $266,367 $2,799 $2,799 1.05%
Kansas $275,764 $2,793 $2,793 1.01%
Iowa $202,620 $2,774 $2,368 1.37%
Nebraska $220,266 $2,764 $2,194 1.25%
Arkansas $197,137 $2,608 $2,071 1.32%
Kentucky $194,879 $2,556 $2,194 1.21%
Wyoming $337,354 $2,510 $2,510 0.74%
North Dakota $240,774 $2,321 $2,321 0.96%
Indiana $240,774 $2,193 $2,193 0.95%
Missouri $238,276 $2,102 $2,102 0.88%

Closing costs specific to loan types

Government-backed mortgages like VA loans require a VA funding fee. This fee is typically rolled into a borrower’s loan balance. In addition, both conventional and government secured loans limit the amount the seller can pay toward a buyer’s closing costs. These seller concession limits may be related to the down payment or based on a percentage of the home’s appraisal value. Typically, the seller can provide a credit between 3% and 6% of the purchase price, but it depends on the type of loan.

  • Conventional loans
    • Down payment of 10% or less—up to 3% seller concession

    • Down payment between 10%-25%—up to 6% seller concession

    • Down payment of more than 25%—up to 9% seller concession

    • Investment properties are limited to a maximum of 2%, regardless of the down payment amount

  • FHA loans
    • Regardless of the amount of down payment, the FHA requires mortgage insurance totaling 1.75% of the FHA loan amount due at closing.

    • The seller can contribute up to 6% of the appraised value or purchase price, whichever is less, towards closing costs.

  • VA loans
    • Funding fees for VA loans are paid to the Department of Veterans Affairs. They range from 0.5% to 3.6% of the loan amount, depending on the number of times the veteran has used their entitlement and down payment. A disabled veteran also has no VA funding fee.

    • Seller concessions cannot exceed 4% of the property’s appraised value. However, the VA doesn’t consider standard loan closing costs or payment of points as seller concessions. Instead, the VA defines seller concessions as “anything of value added to the transaction by the builder or seller for which the buyer pays nothing additional and which the seller is not customarily expected or required to pay or provide.” Examples of seller concessions include payment of the buyer’s VA funding fee, prepayment of the buyer’s property taxes and insurance and payment of extra points to provide permanent interest rate buydowns.

  • USDA loans
    • Funding fees for USDA loans typically equal 1% of the loan amount and are typically financed into the loan amount.

    • Seller contributions are limited to 6% of the sales price. The seller contribution limitation does not include closing costs or pre-paid items paid by the lender through premium pricing. Seller contributions cannot be used to pay an applicant’s personal debt.

What determines who pays closing costs?

The purchase contract and regional government regulations will determine who pays closing costs on the home. You can also negotiate who pays. For example, a fixer-upper buyer might negotiate with the seller to pay a percentage of closing costs instead of making the repairs. In the negotiation process, the seller may ask for concessions in return.

Guild Mortgage cash-to-close calculator

If it’s your first time buying a home, you may need some help calculating a closing cost estimate. Closing costs will typically be in the range of 2-5% of the home value. When you are purchasing, that range can mean a difference of thousands of dollars.

An estimate upfront will give you more time to have the proper funds available. With the Guild cash-to-close calculator, you tell us about the home you’re interested in purchasing. Then, we’ll let you know approximately how much money you will need to close.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.

By |Published On: April 21st, 2022|Categories: Guild Blog, Mortgage 101|Tags: , , , |

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About the Author: Guild Mortgage

Founded in 1960 when the modern U.S. mortgage industry was just forming, Guild Mortgage Company is a nationally recognized independent mortgage lender providing residential mortgage products and local in-house origination and servicing. Guild’s collaborative culture and commitment to diversity and inclusion enable it to deliver a personalized experience for each customer. With more than 4,000 employees and over 250 retail branches, Guild has relationships with credit unions, community banks, and other financial institutions and services loans in 49 states and the District of Columbia. Guild’s highly trained loan professionals are experienced in government-sponsored programs such as FHA, VA, USDA, down payment assistance programs and other specialized loan programs. Guild Mortgage Company is a wholly owned subsidiary of Guild Holdings Company, whose shares of Class A common stock trade on the New York Stock Exchange under the symbol GHLD.