Who Pays Closing Costs? Buyer Or Seller?

Certified Mortgage Advisor
NMLS 1701021
July 4, 2019

Who pays the closing costs the buyer or the seller?

So I'm gonna guess if you're reading up this blog that you're either buying a house or you're selling a house and trying to figure out what are these closing costs? How much do I have to pay? And is there any way on getting out of them as much as possible?

So we're gonna talk about who pays closing costs, what costs they pay, and why closing costs exist in the first place. So let's start.

Why in the world are there closing costs?

If you're a buyer you're already making a down payment. If you're a seller, you're trying to sell your house for as much money as possible. You've paid in equity into the property and got appreciation over time. And you wanna hold onto that money as long as you can. Rightly so why are there closing costs? Because real estate deals are really complex. Not only does it involve you as a buyer or a seller, but you're also having a legal team who's helping you like some realtors.

You're having a title come in. You're having the county come in. You're involving a lot of different people to make sure that the deal gets closed. And so closing costs are the sum of all the third-party costs that happen when you buy or sell real.

Because it's not just you involved in the transaction, there's a realtor, there's a title agent. There might be an attorney. There's an insurance agent. There's the county. You have a lot of people involved. So all these people have to be paid in some way for further service. And that's what helps you close on the house and make sure that you're protected the entire way through. So that's why closing costs exist.

So who pays the closing costs?

First, let's go ahead and clear up what closing costs actually consist of. So closing costs for the buyer on the buying side, up on the screen, I went ahead and put a couple of example fees that you might run into if you are a buyer. So one of those is any lender fees.

Things we'll run into would be an underwriting fee, processing, or any loan, origination charges that are charged by the lender. You might also run into an appraisal and appraisal's about $500. You'll run into things like title, search, and insurance. Recording fees, transfer taxes prepaid.

So you're paying your homeowner's insurance and interest upfront along with setting up your escrow account. So these are all the fees that are required to make sure that when you move in, everything is done, and it's wrapped up for you. And these are not pointless costs. For example, things like insurance, you wanna make sure that you have a full year of insurance upfront.

So you're protected when you move in or title. So when you close on the house, you know that no one's going to come against that property with a claim or a lien, so that all protect you there. So that's on the buyer side. For most of the costs you'll run into, you might be able to lower those by either negotiating those costs with things like insurance or title companies or you might be able to get the seller to pay some of those costs down for you.

Seller concessions or a seller credit

Through what's called a seller concessions or a seller credit. So let's jump over here to the seller-paid costs. So probably the biggest thing that will be a cost to you as a seller is that almost knock over this coffee. One of the biggest costs to you as a seller is going to be paying off your current mortgage.

If you have a mortgage on your house right now, that's going to be paid off at closing. So it will come out of the total. Cash that you would be getting from the sale of the property. So if you're selling for $200,000, but your mortgage is one 50 right off the bat you only have $50,000 left.

In the proceeds that you would be getting not to mention any of the other costs that are associated. So you're paying off your mortgage. Also, the next biggest chunk that's gonna come out of that is the realtor commissions. It's very common for the seller to pay both realtors normally, and I can't speak for every realtor, but normally that looks like 3% of the purchase price going to the buyer's realtor, 3% of the purchase price going toward.

The seller's realtor or if you're the seller you're a realtor. So that's gonna be a pretty big chunk coming out just from those two items. After that you might run into concessions for the buyer's closing costs, right? So the buyer is already coming with a down payment. Sometimes they don't have the money to pay all of the closing costs or they want a little bit more flexibility in their budget.

So sometimes what they'll do in the offer is ask the seller for some seller concessions. That way they can. Handled those closing costs a little bit better. And so that would be coming out of the bottom line. If you're a seller, then you'll run into some other fees that are going to be a lot less than those top three items.

But you might run into things like transfer taxes. You might also run into tax Perion, often tax cycles are divided up either into annual payments or semi-annual payments. And so you would get. On your taxes. If you didn't close on either those semi-annual dates or the annual dates, then you might run into some other legal or processing or admin fees for you as a seller.

So ultimately who pays closing costs. The short answer is both the buyer and the seller. No matter how it's getting arranged, those closing costs are getting paid for, even if you're the buyer and you're getting some seller concessions, you're still paying for those closing costs, but they're getting put into your loan instead of.

Just paid up upfront

So hopefully that clears up a little bit of who's paying for these closing costs. Both people are paying for those closing costs. Where are you gonna get these numbers from? If you are a buyer, your loan advisor should be able to give you an itemized list of all of the costs and fees going into that loan.

If you're a seller talk with your real estate agent, they'll be able to give you what's called a net. The net sheet is going to show you the asking price that you're gonna ask a buyer to purchase your home for what the mortgage payoff will look like, what all those fees are going to look like itemized out that way.

You know what the check is going to look like when you walk away from closing, how much are you getting? Same thing with the buyers, your mortgage advisor should be able to run through those numbers for you. So you know what check you're bringing to closing.

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