When you’re buying a house for the first time, it’s easy to underestimate the total cost of your home. After all, the final purchase price you agree upon doesn’t include the extra fees you’re responsible for paying like closing costs.
On average, closing costs amount to an additional 2-5% of the purchase price. However, the total amount you pay depends on whether you’re the buyer or the seller.
Read through our guide to buyer vs seller closing costs to get a better understanding of who pays for what. As a result, you can avoid the surprise of “hidden fees” when it’s time to close on your house.
Buyer’s Closing Costs
Have you heard that a buyer pays all closing costs? That’s not always the case!
Generally speaking, the buyer is responsible for more of the closing costs than the seller is. That’s because most of the buyer’s closing costs relate back to the loan they take out to purchase the property.
As a buyer, you can expect to pay most, if not all of the following fees.
An appraisal is done to determine the value of the property you’re buying. The cost of the fee is usually a few hundred dollars. However, the price depends on the size of the house, the value of the property, and other details.
Credit Report Fee
Before you can qualify for a mortgage, your lender will need to run a credit check. Most of the time, the fee to run the report is passed back to you, as the buyer.
Also known as earnest money, this is a deposit that you’ll put in an escrow account once the seller has accepted your offer. It’ll stay in the account until the final closing, as a way to protect the seller if you end up backing out of the sale.
Similar to your home appraisal, you’ll also need a home inspection before buying a property. This helps you identify any potential problems with the home before you’re locked in to buy it. Generally, home inspections are a few hundred dollars.
Title Search Fees
Before you can buy a house, a title search is run. This is almost like a background check for the house, as it identifies any outstanding liens on the property.
Because buying a house is a public transaction, there needs to be a record of it on file. This is known as recording. You’ll be responsible for paying the recording fees for filing your deed and mortgage with your county.
Flood Certification Fee
Before you can receive a mortgage, your lender will want to know if the home you’re buying is in a flood zone. In order to verify whether it is or not, you’ll have to pay a flood certification fee.
If your home is in a flood zone, you’ll also have to pay for flood insurance.
Lender’s Title Insurance
In order to secure a loan to buy your new home, the lender requires some protection, should a problem arise with the title. This is done in the form of title insurance. However, make note that this only protects the lender, not you, the buyer.
Seller’s Closing Costs
In most home transactions, the seller isn’t responsible for as many fees as the buyer. However, you’ll still need to be prepared to cover the following costs.
Perhaps the biggest responsibility of the seller is covering the commission fees for both the buyer’s and seller’s real estate agent. In most cases, that amounts to 6% of the total purchase price.
Depending on the home, this one fee can amount to more than all of the buyer’s closing costs.
Do you want to make the buyer feel like they’re making the right choice in purchasing your property? It can help to include a home warranty for one year. In doing so, you’ll pay the premium for that year to give the buyer peace of mind.
Owner’s Title Insurance
We mentioned lender’s title insurance above, but owner’s title insurance protects the buyer in the event an issue comes up with the title. In many cases, the seller opts to buy the owner’s title insurance, as an extra incentive for the buyer.
Prorated Taxes and HOA Fees
In most cases, houses aren’t bought at the start of a new year. So, because you lived in the house for some duration of the year, you’ll have to pay the buyer the prorated taxes for the time you lived there before they took ownership.
If the property is in an HOA, you’ll have to pay the prorated HOA dues as well.
Anytime a property title changes ownership, there are associated taxes. The fees are determined by the local government and they cover the cost to make the change on legal documents.
Buyer vs Seller Closing Costs: Reducing the Impact
If you’re concerned about covering the costs of the fees mentioned above, you do have some options to make it a little easier.
As a buyer, you may qualify for a down payment assistance grant to help make buying a house more affordable.
Buyers and sellers are also free to negotiate some of the closing costs, especially if that’s the only thing preventing finalizing the sale. It never hurts to ask the other party if they’re willing to take on some of the costs.
After all, the worst they can say is “no.”
Preparing to Buy a Home
Buying a home is never an easy endeavor. However, now that you know more about buyer vs seller closing costs, you can go into the process feeling more prepared about what to expect.
And remember, in the end, it’ll all be worth it.
Looking for some inspiration for your new home? Read through our other articles before you go.