Who Pays Closing Costs? What Homebuyers Need to Know

Estimated reading time: 5.5 minutes

Closing costs are the expenses and fees you pay when finalizing your home purchase. These costs cover services like your loan processing, title work, and taxes. On average, you can expect to spend between 2% and 6% of the home’s purchase price on closing costs. By understanding what these costs are before closing, you can budget more efficiently and feel better prepared to receive your keys.

How Do I Learn What My Closing Costs Are?

After you apply for a mortgage, your lender will provide a Loan Estimate. This document will outline various costs, such as your estimated interest rate, monthly payment amount, estimated tax and insurance costs, and total closing costs.

Your Loan Estimate must be provided to you within three business days of receiving your application. It isn’t a loan acceptance or denial—it simply lays out what you may be offered and required to pay if you continue working with that lender.

Before closing, you’ll receive your closing disclosure at least three days before your scheduled closing date. This document will outline the terms and conditions of your mortgage agreement in addition to a comprehensive overview of necessary costs.

Your closing cost estimates aren’t all set in stone. While some costs may change before closing, certain fees are subject to federal tolerance limits and cannot increase beyond specific thresholds.

What is Included in Closing Costs?

Closing costs vary, but they may include:

• An application fee (if applicable)
• Escrow and prepaid costs, like homeowners insurance
• An origination fee
• Title insurance
• Appraisal fee
• Credit report fee
• Recording fees
• Property and school taxes
• State specific mortgage taxes

When Do I Pay Closing Costs?

You’ll be responsible for paying most of the fees that make up your closing costs on closing day. The exact fees and expenses will depend on factors like your loan type, lender, and what state you’re in. However, some costs are paid before closing, such as your appraisal or inspection. If you have any questions about when to pay certain costs, it’s best to speak with your Loan Originator.

Who Pays Closing Costs?

In most transactions, buyers and sellers both pay closing costs, but the exact breakdown is often negotiable and dependent on the type of transaction.

Closing Costs as a Buyer

As a buyer, you are responsible for a combination of closing costs. These include one-time fees and initial costs needed to fund escrow.

Buyer closing costs may include:

• Loan fees
• Appraisal (and inspection, if applicable)
• Credit Report fee
• Mortgage taxes (dependent on the state)
• Recording fees
• Lender’s title insurance policy
• Escrow/prepaid property taxes and insurance

Closing Costs as a Seller

Sellers are responsible for some closing costs, too. These fees are usually related to the commissions paid to real estate agents and taxes.

Seller closing costs may include:

• Transfer taxes, depending on your state
• Attorney fees, depending on your state
• Real estate commissions

How Can I Reduce My Closing Costs?

Closing costs are necessary to pay for certain fees that are accrued during the loan process. However, if your Loan Estimate reveals that you have high closing costs, you may be able to lower them.

Shop Around

There are certain closing costs you can shop around for, potentially lowering your out-of-pocket spending. In some cases, you may be able to shop for services related to the title policy and homeowners insurance, depending on your location.

Seller Concessions

Buyers can sometimes negotiate for seller concessions, which can be applied toward eligible closing costs, subject to loan program limits. It’s best to speak with your Loan Originator about whether seller concessions work for your loan.

Down Payment Assistance Programs

In addition to assisting with your down payment, down payment assistance (DPA) programs and grants may be used toward your closing costs. While many DPA programs are aimed toward first-time homebuyers, there are some that are eligible for repeat buyers. Additionally, some DPA programs are designed for specific demographics based on income levels, job, or even geographic area.

How Do I Have a Successful Closing?

It’s exciting when you reach closing day. It’s the last step you take before receiving your keys and your new home becomes yours. Be sure to inform your mortgage lender if anything changes, such as your income or credit. Additionally, be sure you save major purchases for after your loan closes. Your lender’s underwriters may continue to check your financial information throughout the homebuying process to ensure you’re still on track to close and consistently pay back your loan.

We’re Here for You Through the Homebuying Process

When you’re securing your home financing, it’s important to choose a mortgage lender that cares. Our Loan Originators are here to support you and find the appropriate loan program that works best for your lifestyle and needs. When you have questions along the way, they will be able to answer them with professionalism and care. Reach out to us today to learn more.