Who Pays Mortgage Closing Costs?
Buying a house comes with some unexpected expenses. Don’t let closing costs be one of them – find out what to expect as a buyer or seller when it comes to closing costs on real estate transactions.
It’s so tempting to think of your mortgage as the price of your new home, period. But in reality, home buyers are often on the hook for a lot more than just their downpayment and the monthly payments that follow. When you close on your home mortgage – whether that’s a first or second mortgage – you’re going to have to pay closing costs. Even sellers have to pay some closing costs.
Let’s see what closing costs are, who pays them, and whether you can get some assistance covering these costs.
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What Are Closing Costs?
As the name suggests, closing costs are the costs associated with closing a mortgage. To be more specific, they’re usually fees charged by companies or professionals involved with the mortgage process, such as attorneys, title companies, insurance companies, and more. However, because regulations differ from state to state, not every mortgage has the same closing cost requirements.
Usually, total closing costs range from about 2-6% of the property cost. Although buyers pay the bulk of closing costs in a real estate transaction, it’s important to note that sellers have to pay a few closing costs of their own.
Closing Costs for Buyers
Home buyers can expect to be given a document listing expected closing costs (called a loan estimation) prior to completing their loan. Within three days of the loan closing date, you should receive another document listing the actual closing costs. These might include:
Your first year’s home insurance premium.
Loan application and administration fees (i.e. costs associated with the mortgage underwriting process and similar).
Escrow fees.
Document fees (i.e. for preparing and transporting documents, filing documents at the county clerk’s office, etc.).
Attorney fees (if you’re using an attorney).
Title search and insurance fees.
Private mortgage insurance or other types of mortgage insurance fees.
Association fees, if you’re moving into a subdivision, planned community, etc.
Taxes, including property tax and possibly transfer tax.
Depending on your lender, you may also need to pay for home inspection and real estate appraisal costs.
Closing Costs for Sellers
Sellers also have to pay their own set of closing costs. Depending on the area and what the purchase contract stipulates, these can include:
Real estate agency fees are traditionally paid by the buyer. Usually, this is a 6% commission on the purchase price, with half going to the buyer’s agent and half to the seller’s agent.
Title insurance and search fees are sometimes split between the buyer and seller; at other times, the seller or buyer will pay the entire cost.
Seller concessions happen when the seller, to sweeten the deal, agrees to cover some of the closing costs for the buyer. This is negotiated before the closing day.
Getting Help with Closing Costs
Closing costs can add up quickly; if you’re buying a $200,000 house, you could easily be looking at an additional $5,000 in costs – and that’s in addition to your down payment. Not a lot of home buyers have that kind of extra cash to hand, so it’s best to budget it into your plans.
What if you can’t or don’t want to pay your closing costs upfront? Talk to your mortgage lender before you close the loan; they may be willing to bundle these costs into your mortgage. You may also want to investigate non-traditional loan options, which can help you with some of the financial burdens of homebuying. For more information, call us at 1-810-335-2102 or download our digital mortgage app!