Closing Day: Who Pays What When Buying a Home
Buying a home is an exciting milestone—yet it comes with its share of expenses beyond the purchase price. On closing day, both buyers and sellers face a variety of costs, including fees for services, taxes, and adjustments that finalize the sale. Understanding who pays for what can help you better prepare and avoid surprises. Here's a straightforward breakdown of common closing costs and customary practices.
Many costs are negotiable and can vary depending on your location, local customs, and the terms of your purchase agreement.
1. Loan Application and Origination Fees
These include the loan origination fee and sometimes discount points, which buyers can purchase to lower their interest rate.
Who pays: Buyer.
2. Appraisal Fee
Lender-required valuation to confirm the property's value.
Who pays: Buyer.
3. Credit Report Fee
A small fee to pull your credit reports for the mortgage process.
Who pays: Buyer.
4. Home Inspection(s)
General inspections, pest, radon, sewer scope, roof assessments, etc.
Who pays: Buyer. (Sometimes sellers offer concessions for repairs)
5. Title Search and Insurance
Ensures the property has a clear title. Owners often purchase title insurance for protection, while the lender's policy is usually paid by the buyer or split.
Who pays: Varies by region and negotiation.
6. Escrow and Closing Fees
Fees for managing the transaction, typically split between buyer and seller, based on local customs.
Who pays: Usually split, but negotiable.
7. Recording Fees and Transfer Taxes
Costs for recording the new mortgage and deed; transfer taxes are often seller’s responsibility, but this can vary.
Who pays: Buyer for mortgage recording; transfer taxes vary.
8. Prepaid Items and Reserves
Prepaid mortgage interest, property taxes, homeowners insurance, and escrow reserves.
Who pays: Buyer.
9. Survey or Boundary Report
May be required by the lender.
Who pays: Buyer (sometimes seller provides recent survey).
10. HOA Fees and Transfer Charges
Some associations charge transfer fees or require certifications.
Who pays: Negotiable, often buyer.
11. Mortgage Insurance (PMI)
If the down payment is less than 20%, you might pay PMI upfront or monthly.
Who pays: Buyer.
1. Real Estate Commissions
Agents typically earn 5–6% of the sale price, split between listing and buyer’s agents.
Who pays: Seller.
2. Payoff of Existing Mortgage(s)
Seller clears any liens or mortgages on the property.
Who pays: Seller.
3. Title and Escrow Charges (Seller Part)
Seller’s share of closing fees and title endorsements.
Who pays: Seller.
4. Transfer Taxes and Recording Fees
In many jurisdictions, sellers pay transfer taxes.
Who pays: Seller (varies).
5. Outstanding Taxes, Assessments, Utilities
Prorated based on closing date.
Who pays: Seller for prior periods; buyer after closing.
6. Seller Concessions or Repairs
If sellers agree to cover buyer’s closing costs or make repairs, those costs come out of proceeds.
Who pays: Seller.
7. Home Warranties or Incentives
If offered to entice buyers.
Who pays: Seller.
8. Escrow Holdbacks or Repairs
Funds held back to ensure post-closing repairs.
Who pays: Seller.
Some expenses—property taxes, HOA dues, utilities—are prorated based on the closing date. Each party pays their share, as negotiated.
Many costs are negotiable. For example, who pays for title insurance, escrow fees, or transfer taxes can vary. Different states have typical practices; for example, in California, sellers often pay for title insurance and commissions, whereas in Texas, buyers frequently cover title costs.
Understanding the various closing costs involved in a real estate transaction is essential for both buyers and sellers to effectively plan and negotiate. While these costs can vary depending on location, local customs, and specific contract terms, being aware of who typically pays what—and which items are negotiable—can help you avoid surprises on closing day. By carefully reviewing estimates, exploring your options, and working closely with your real estate agent, you can ensure a smoother path to homeownership or sale. Preparation and knowledge are your best tools to navigate this important milestone confidently
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