What are closing costs when you buy, sell or refinance a house? Discover what closing costs are, who pays them and the different costs associated with closing on a home.
What are Closing Costs?
Closing costs consist of the out-of-pocket money you need to complete a mortgage transaction. They are expenses and fees paid to finalize a home sale, not including the down payment. Closing costs can range between 2-5 percent and the amount you pay for your closing costs will vary depending on the purchase price and location.
In some instances, you can include closing costs in the mortgage amount, often referred to as “rolling them in.” By adding the closing costs to your mortgage balance, you don't have to pay them on closing day. Instead, you make payments throughout the life of the loan or other agreed-upon timeframe.
Who Pays Closing Costs?
Both the buyer and seller have closing costs to pay. Discover what are closing costs for sellers vs. buyers.
What are Closing Costs for Sellers?
Sellers are responsible for paying the commission of the real estate agents involved in the transaction. The closing costs for sellers are deducted from the profit made from the sale of the house. If there was no equity in the home and no money was made from the sale of the house, the seller is still responsible for the commission expenses.
What are Closing Costs for Buyers?
Buyers have more closing cost responsibilities that include the following:
Loan Origination Fees - Charged by the lender, loan origination fees are paid to the lender as compensation for processing the loan. Underwriting fees are also paid to the mortgage company.
Appraisal and Survey Fees - States and lending institutions use appraisals and surveys to determine the fair market value of a home. These fees are paid for by the buyer and typically costs a few hundred dollars.
Title Insurance - Title insurance protects lenders and buyers from unexpected financial loss if the property title is bad. The cost for title insurance is based on the purchase price of the home.
Homeowners Insurance - Homeowners insurance is required for homebuyers. Many homebuyers choose to pay their first year of homeowners insurance at the closing.
Private Mortgage Insurance (PMI) - PMI protects lenders should a borrower default on their mortgage payment. PMI isn’t always required, but when it is, it is often paid at the closing.
Property Tax - Six months of property tax are often paid in advance at the closing. The cost of property taxes varies based on the property location and value.
Escrow Fee - Escrow fees are paid to the title company or escrow company. They cover the cost of creating an escrow account and any additional fees needed to close on the house.
Attorney Fees - If an attorney is required to purchase a home, fees for their service may be included in the closing costs.
Miscellaneous Fees - Any additional fees, such as the cost of a credit check, are included in the closing costs.
In some cases, a buyer can negotiate some of these costs to be paid by the seller by offering to pay more for the house. This is a great way to limit the amount of money taken from the buyer’s pocket. Instead, all costs are paid over the life of the loan as opposed to upfront. When it comes to negotiating closing costs, discuss the possibility with your real estate agent who can negotiate with the sellers.
So, what are closing costs? They are costs paid to finalize the sale of a home. Closing costs are also paid during the refinance process. Whether you are looking to buy, sell or refinance, Wyndham Capital Mortgage is here to help. Check out our most commonly asked mortgage questions to learn more about the home lending process today.