Who Pays Closing Costs?

Whether you’re a first time home buyer or a seasoned pro, it’s important to know who pays closing costs and your options should you want to avoid closing costs. In this weeks blog, let’s go over everything related to closing costs so you can be as prepared as possible.

What are Closing Costs?

When someone closes on a home, it means that the title of the house is now assigned to the new owner. So closing costs include any of the expenses that must be paid when this transfer is completed. Closing costs are dependent on the home location, the loan type, and what kind of home you are purchasing.

It’s recommended to shop around for a good loan agency as some can include very unnecessary expenses, like mailing costs or extremely high administrative costs on the loan estimate you’ll receive.

Make sure to read every line on the estimate before choosing a lender so that you’re not paying anything you shouldn’t be paying. Or ask your agent to verify the information as well.

Specific Buyer Closing Costs

To break it down, when someone purchases a home, they will usually pay about 2 to 5 percent of the total amount of the house in fees. For example, if a buyer buys a home for $400,000, he will pay the down payment, but could also pay around $8,000 to $20,000 in closing costs. These closing costs can be any of the following:

• Credit report fees – fees from getting your credit checked by a lender
• Application fee – fees for applying for a loan
• Escrow Fee – fee from the escrow company that holds your earnest money and down payment until closing is complete.
• Loan Origination Fees – fees to process the loan paperwork
• Appraisal fees – fees to find out the market value of the home.
• Underwriting fees – fees to review the loan application
• Transfer Tax – fee for transferring the home to the new owner

As you can see, there are a variety of closing costs for the buyer, mostly administrative costs. This list isn’t complete; it just gives you a sample of what to be prepared for, so you’re not overwhelmed.

Specific Seller Closing Costs

The seller’s list of closing costs might seem much smaller than the buyer’s, and it is, but that doesn’t mean that it’s less expensive. The seller’s closing costs are based on the commission that the real estate agent will receive from the total purchase price of the house.

Usually, this commission is equal to 6% of the full sale price. Since the buyer’s closing costs are generally 2-5 percent of the house cost, this means that the seller will usually pay more than the buyer.

However, remember how important staging your home is in order to sell fast and get a higher offer.

Here are a couple other costs that the seller might need to pay:

1. Title Insurance Premiums

The seller will pay for the insurance for the owner’s title for the home in case any issues are found with the house.

2. Transfer Taxes

Fees that Oregon or Oregon counties might charge for transferring the title to the new owner.

So Who Pays Closing Costs?

The norm is that the buyer pays the closing costs due to the commission that the seller covers. But if you’re lucky or willing to negotiate, then you might be able to get the seller to pitch in towards the closing costs.

Here are a few options for the buyer to consider when trying to woo the seller into paying some or all of the closing costs:

Pay more

It might sound crazy, but it does help some individuals. If the buyer offers to pay $405,000 instead of $400k while the seller pays the closing costs of $8k-$20k, then the buyer will add a few dollars to the monthly mortgage, and the seller receives a higher sale price.

Close quickly

Instead of closing in 60 days, the buyer could offer to close in 30. That could really entice the buyer to pay closing costs so that they can be more assured that their house will be sold.

Don’t make lofty requests

The seller might be more inclined to pay closing costs if they don’t have to fix the roof and install a new furnace before the buyer makes the purchase. The buyer should be willing to make their own repairs after closing.

No matter what route you want to go with closing costs- I’ll be there to support you and be your advocate. Contact me at: leah@leahhyland.com