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 to those that have never been through the process before, so we’ve put together a review to help clear things up and get you feeling confident about the home-buying process.

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

6%

203k Loans

6%

USDA Loans

6%

VA Loans

4%

FHA Loans

6%


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 and connect with your American Family Insurance agent. You’ll get fine-tuned coverage for your big investment that can help you find real peace of mind.


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