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Does the Buyer or the Seller Pay Closing Costs?

Closing costs are paid according to the terms of the purchase contract made between the buyer and seller. Usually the buyer pays for most of the closing costs, but there are instances when the seller may have to pay some fees at closing too. We understand it can be confusing if you’ve never been through the process, so we’ve put together a short video to help clear things up. After watching the video, keep reading for more closing cost information that will have you feeling confident about the home-buying process.

  1. Buying a new home can be very exciting.


    Yet, the buying process may seem complicated and a little confusing, especially when it comes to closing costs.


    Thankfully, your friends at American Family Insurance are here to help.


    So, what are closing costs and who pays for them?


    In short, closing costs are all the fees, taxes and administrative expenses required to finalize your home purchase.


    Note that closing costs are separate from your down payment.


    Your down payment is part of the home's purchase price that you must pay upfront with the remainder usually being paid via a mortgage loan.


    It's important to remember that closing costs do not count toward either your down payment or your mortgage balance. They are an additional cost.


    Some lenders will combine everything you owe at closing, both the remainder of your down payment

    and your closing costs, and call it cash due at closing.


    Now, who pays the closing costs? The buyer or the seller?


    The answer is actually both. Some closing costs are paid by the buyer and some are paid by the seller.


    Typical fees paid by the buyer include: loan origination fees, mortgage points, title insurance, appraisal costs, and half of the escrow fee.


    If your total down payment is less than 20% of your home's purchase price, you may also have to pay private mortgage insurance or PMI at closing. You may also be asked to prepay property taxes, loan interest charges and homeowners insurance.


    Overall, closing costs typically end up between 2% and 6% of a home's purchase price.


    Be sure to ask for an itemized list of your closing costs so you know exactly how much you're paying and for what. And if something doesn't add up or there are surprise costs, don't be afraid to ask your loan officer for more information.


    Now that we know what buyers pay, what about sellers?


    If you're selling your home, you'll also have costs to pay at closing.


    Typical fees paid by the seller include real estate agent commissions, transfer taxes, any pro-rated property taxes, and half of the escrow fee.


    Sellers often pay 5% to 6% of their homes, purchase price and agent commissions before other taxes and fees.


    So there you have it! Both buyers and sellers pay costs at closing.


    And here's a quick tip for home buyers to help make closing costs go more smoothly and possibly save you money too: Buy your homeowner's insurance before closing.


    This way you can shop around to find the best coverage for your new home and the best fit for your wallet.


    Contact your American Family agent today to learn how you can design your own homeowner's policy!

What Are Closing Costs?

Buyer and seller closing costs are the monies due at closing, usually ranging from 3 percent to 5 percent of the total purchase price, comprised of fees and taxes. Although buyer vs. seller closing costs vary, they’re usually predictable. Sometimes, the seller can be asked to pay for some closing costs instead of the buyer, but it’s important to keep in mind that they’re already paying around 6 percent of the total sale in agent fees and commissions. Buyers may not have much luck asking the seller to absorb additional fees, but occasionally it’s a tactic that does pay off.

From the prepayment of taxes to required fees payable to county and local authorities, closing costs are made up of payments to many entities. These fees can be reduced by the lending company — sometimes they’ll give the buyer a break and discount their service fees — as an incentive for doing business. When diving into the question of who usually pays closing costs, buyer or seller can be held responsible for paying. Both buyer and seller need to be aware of how these expenses will be paid before it’s time to sign on the dotted line.

What Closing Costs Does the Seller Pay?

Closing costs are split up between buyer and seller. While the buyer typically pays for more of the closing costs, the seller will usually have to cover their end of local taxes and municipal fees.

There’s a lot to learn for first time home sellers. For example: who pays title fees, buyer or seller? And, do buyer and seller ever split closing costs evenly? If the seller is opting to pay for repairs through escrowed money, they’re going to have to come up with that cash either from the profits of the sale, or out of their own pocket. Here’s a look at some of the common expenses a seller will have to pay at closing:

  • Agent commission
  • Transfer tax
  • Title insurance
  • Prorated property taxes
  • HOA fees
  • Credits toward closing costs
  • Seller attorney fees
  • Any escrowed money promised to the buyer

Maximum Seller Closing by Loan Type

Commissions paid by the seller can be limited depending on the type of lending agreement they have with their bank. One way that home buyers can decrease the amount they need to bring to the closing table is to request that the seller credit the buyer a certain amount of money at closing — above the purchase price. This money is then earmarked for the buyer to apply towards the payment of closing costs.

With the seller effectively paying the buyer’s closing costs, the amount of the loan is increased, but the need for the buyer’s cash-in-hand is decreased. Their ability to contribute to the buyer may be limited by the kind of loan the buyer has. Here’s a look at loan types and the seller’s contribution limits associated with each.

Buyer Loan Type
Max Seller Contribution

Conventional Loans


203k Loans


USDA Loans


VA Loans


FHA Loans


Who Pays Escrow Fees?

Typically, escrow fees are split 50/50 between both parties. Escrow is another name for a protected savings account. In the real estate world, escrow accounts are overseen by a third party that holds the buyer’s and seller’s money until the property changes ownership at closing, where it’s then paid out to the appropriate party or held for later use. Escrows help to safeguard the money in a neutral bank account for the period of time it takes to close on the purchase. So, who pays escrow fees — buyer or seller? Again, it all boils down to the purchase agreement and the language in your contract.

The escrow fee can be in the form of a flat rate, usually around $500 to $2,000, or can cost as much as 1 percent of the total purchase price. Escrow fees cover the cost of transferring or wiring the money to and from an account, notary charges and the costs related to copying and administration of account documents.

And there you have it! You have a better picture of what closing costs are and how to navigate the home purchasing process. Because it’s so important to understand those hidden costs when buying a home, be sure to get financial updates from your lender frequently. While you're reviewing how you want to manage the purchase expenses for your new home, remember to make time to find the best homeowners insurance coverage before closing day. Use our instant home quote tool today to build a policy customized to your unique needs.

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