The Realty Geek's Blog

What Closing Costs Can I Expect When Buying or Selling a Home?

The stakes in real estate transactions are high – and often fraught with emotion for people who may well be engaging in the biggest purchase or sale of their lives. Furthermore, it takes a lot of different people working together to make a home purchase or other real estate transaction happen. The buyer and seller are just the beneficiaries of a tremendous amount of effort that takes place on the part of lenders, real estate agents, escrow representatives, property and title insurance agents, county registrars and local property tax officials – and no one in these agencies can work for free.

The good news is that if you are a buyer, you shouldn’t be blindsided by any significant unexpected costs: Federal laws require lenders to provide their customers with a good faith estimate, or GFE, of your closing costs, within three days of your loan application. All your expected closing costs are delineated in this document, though some of them can vary by as much as 10 percent when you get to the closing table.

It is important to compare the GFE with any HUD-1 forms you receive in the mail during the escrow process. You may receive more than one as the loan progresses. It’s important to read each one and compare the figures to those on the GFE. The information on page 3 of the HUD-1, located at the bottom of the second chart, will show you the difference between the figures on the two documents and outline which costs can’t increase and which ones can’t increase by more than 10 percent. You may be entitled to a refund if the lender miscalculated or failed to disclose certain items. Point out any discrepancies to your lender or your real estate agent.

Closing Costs When Buying a Home

As a buyer, using a conventional loan, you can expect to pay the following fees at closing:

  • Origination Fees – This is a fee you pay to your lender for securing the capital for you. However, in some cases, the origination fee can be wrapped into the balance of the loan.
  • Points – These are essentially fees you pay to “buy down” to a lower interest rate. For example, your lender may give you an option of a loan at 5 percent with no points, or a loan at 4 percent with a payment of 1 percent of the mortgage value at closing. Each “point” is 1 percent of the loan amount.
  • Credit Check Fee – Self-explanatory. The lender has to pay a fee to run your credit report. They pass this fee on to you.
  • Appraisal Fees – These are fees for an independent appraisal of the property’s value to the lender.
  • Lender’s Attorney’s Fee – Yeah, this is kind of the lender’s problem, not yours. Consider objecting.
  • Title Services and Lender’s Title Insurance – Title insurance provides coverage in case the seller does not own the title free and clear, and someone else comes to claim an interest in the property at some later date. This fee pays for a title search as well as a premium to compensate the lender in the event the title is in question.
  • Owner’s Title Insurance – This insurance protects you, as opposed to the lender. If the seller does not have clear title to sell, and another claimant emerges with a legitimate interest in the property, title insurance ensures that you will be financially made whole.
  • Property Inspection Fees – At a minimum, you should have a home inspection and a wood-destroying pest inspection done. Additionally, you may want to get a water inspection, a septic inspection, or a radon inspection, depending on the property.
  • Transfer Taxes – These are fees your municipal or state government may tack on for the effort required to update property records, search for outstanding liens on the property, and issue a new title. This tax is based on the sale price of the home.
  • Escrow Deposit – You will need to come up with money to give to the escrow company to pay for recurring charges on your property, including property tax and insurance.
  • Homeowners Insurance – You will need to obtain homeowners insurance coverage on the property prior to closing. Consider getting it in place about two weeks prior to closing.

As a buyer, you shouldn’t normally be required to pay any real estate agent or broker fees. For residential transactions, unless the buyer specifically requests a buyer’s agent rather than a traditional real estate agent, the agent is always paid by the seller.

Shared Closing Costs

The buyer and seller each share the prorated property taxes, as well as prorated property insurance costs, which are calculated based on the date the change of title is stamped and recorded. The date of recordation is not necessarily the same as the closing date. The seller will pay property taxes up through the date of recordation, and the escrow company will pay the remainder out of your escrow deposit.

Closing Costs When Selling a Home

For sellers, the transaction is simpler, but no less expensive: The seller typically pays real estate commissions for both the listing agent and the buyer-side agent. Some sellers bypass the real estate agent, however, offering their homes for sale directly – “For Sale Buy Owner,” or FSBO - and potentially save tens of thousands of dollars in closing costs. The downside: It could take awhile to sell the house, unless you have a buyer in mind already.

As a seller, you can also expect to pay your last prorated utility, water and trash pickup bills.

Depending on your jurisdiction, you may also get tagged for transfer or stamp taxes at the municipal, county or state level. Your real estate agent should be able to give you a full breakdown on fees and taxes required of you for your particular locale.

In sum, no matter which side of the transaction you’re on, expect to bring some additional cash to the closing table. The total amount that buyers and sellers pay can vary widely depending on origination fees, commissions, local taxes, and other factors. For more detailed information, you can read the Department of Housing and Urban Development’s Guide to Settlement Costs.

Comment balloon 34 commentsEric Proulx • September 27 2012 05:05PM

Comments

Eric, That is very comprehensive and will be a help to buyers. Good job.

Posted by Debbie Reynolds, Your Dedicated Clarksville TN Real Estate Agent (Platinum Properties) over 5 years ago

This is such an informative post for first time buyers! Great post so I am going to suggest it.

Posted by Sussie Sutton, UTR TEXAS Realtors - Rep for buyers and sellers. (UTR Texas Realtors) over 5 years ago

Eric -- that is a very good listing of the closing costs. The one other thing the buyer is going to have to bring to closing is any downpayment funds required by the loan type.

Posted by Steven Cook (No Longer Processing Mortgages.) over 5 years ago

Eric, nice list. Steve Cook hit a great point about down payment depending on loan type

Posted by Ron Aguilar, Mortgage & Real Estate Advisor since 1995 (Continental Mortgage) over 5 years ago

Eric... good info especially for the buyers... not sure I agree with the info for the sellers... congrats on the feature and have a great day... Beth

Posted by Richard and Beth Witt, Long Island Cash Home Buyer 516-330-6940 (Long Island Cash Home Buyer) over 5 years ago

Very clear and concise explanation of the basic closing costs.  Even seasoned buyers would learn a bit from this.

Posted by Bryan Robertson, Broker, Author, Speaker (Intero Real Estate) over 5 years ago

Excellent information to pass onto my Buyers!  Thank you for compiling such a comprehensive list.  Very helpful!

Posted by Barb Merrill, GRI, Associate Broker (Cactus Mountain Properties, LLC) over 5 years ago

Great info - best to know what they are vs being suprised at closing. Regards Dave

Posted by David Grbich, Orange County Real Estate - 949-500-0484 (Realty One Group - www.FindCARealEstate.com) over 5 years ago

Clear, concise, useful and informative, so thanks for sharing.

Posted by Kimo Jarrett, Pro Lifestyle Solutions (WikiWiki Realty) over 5 years ago

This is a great informative post.  Good job Eric!

Posted by Spectrum Inspection Group (Spectrum Inspection Group) over 5 years ago

Eric:  Great job!  I find my Closings go so much more smoothly if the clients (on both side) are informed and educated at to expectations and costs.  The better they understand the whats and whys, the better their professional service was ...

Congrats on the Feature!

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) over 5 years ago

Eric - I had to chuckle when you mentioned a lot of people working together... these days it seems you get real estate transactions to settlement DESPITE a lot of people working against each other!

Posted by Brad Baylor (ERA Coup Agency) over 5 years ago

Working together is key. As Brad says sometimes it's in spite of people working against each other. Every County (and sometimes City) is different, but these are the usual costs any buyer can expect when purchasing a home.

Posted by Michelle Carr-Crowe-Top 1% Diamond Certified Real Estate Team Sells Cupertino San Jose Homes-Just Call 408-252-8900, Family Helping Families Buy & Sell Homes 40+ Years (Get Results Team...Just Call (408) 252-8900!) over 5 years ago

Looks like you have put this in a nutshell for us.

Thanks,

Ginger

Posted by Ginger Harper, Your Southport~Oak Island Agent~Brunswick County! (Coldwell Banker Sea Coast Advantage) over 5 years ago

You've created a very handy little list. It's such a common question and this is a good summary.

Posted by Jill Sackler, LI South Shore Real Estate - Broker Associate (Charles Rutenberg Realty Inc. 516-575-7500) over 5 years ago

Eric - Sometimes, there are additional closing costs develop few days before closing. Thanks for the information about what closing cost can I expect when buying or selling a home.

Posted by John Pusa, Your All Time Realtor With Exceptional Service (Berkshire Hathaway Home Services Crest) over 5 years ago

Eric, good post on sharing buyers and sellers need to anticipate and bring money to closing...i can remember a closing for a house years ago where the real estate attorney didn't tell me quite how much to bring & I was shocked at the amount...way before GFE..so thank goodness for it.

Posted by Ginny Gorman, Homes for Sale in North Kingstown RI and beyond (RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate) over 5 years ago

Eric:

I have been surprised by many buyers whom I counsel about buying a home because they don't realize there are other fees they must pay when they buy a house.  You write the costs in a way that buyer can easily understand.

Posted by Evelyn Kennedy, Alameda, Real Estate, Alameda, CA (Alain Pinel Realtors) over 5 years ago

super informative .... every buyer should read this!   pippa

Posted by Pippa Mac, The Woodlands TX Real Estate (Chevaux Group Realtor, The Woodlands and Spring) over 5 years ago

Great information - am definitely going to re-blog. In Oklahoma, we may be the last state where the Seller pays to bring the abstract up to date ($400-$700) for each transaction.

Posted by Lori Cain, Midtown Tulsa Real Estate Top Producer (eXp Realty) over 5 years ago

Hi -  Great Article.  We have a calculator that calculates all of this for you, and will create a PDF report as well.  It's located at http://www.closing.com/smartclosing-mortgage-calculator/application/

Posted by Tim Armbruster over 5 years ago

Eric, that's a great blog about closing costs. The final numbers seem to be confusing a lot more often than not. Thanks!

Posted by Eric Michael, Metro Detroit Real Estate Professional 734.564.1519 (Remerica Integrity, Realtors®, Northville, MI) over 5 years ago
Eric - This is important information for buyers. They need to understand what they will be paying.
Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 5 years ago

Hi Eric Frequently I see that my own closing costs sheet is better than the lenders! 

Posted by Erica Ramus, MRE, Schuylkill County PA Real Estate (Erica Ramus - Ramus Realty Group - Pottsville, PA ) over 5 years ago

Eric, this is a good list to get your buyers ready for what the banker is going to want to tack on to the loan, there are ways around some of these, but probably not for first time buyers.

 

Posted by Bob Crane, Forestland Experts! 715-204-9671 (Woodland Management Service / Woodland Real Estate, Keller Williams fox cities) over 5 years ago

Thank you Eric...this is a great post to share with clients that explains what their costs would be to close on a property.

Posted by Goran Utvic, We Buy & Sell Chicago Houses Fast (606 Homes LLC | Chicagoland Brokers Inc, Chicago IL 60656) over 5 years ago

Hi Eric,

Here's one critical item that was left out.

When selling a home, there are two title policies. 95% of the time, the seller pays for a policy that is called "Owners Title policy (owners title insurance policy).

Notes: This policy is more expensive than the lenders policy. This is a cost that needs to be budgeted for in the expense of selling a home. You cannot overlook the total expenses and this is one to account for.

You can get quotes from different title companies for an owners policy.

You will also want to ask the title company if there are any other costs that they will charge, such as a doc prep or a closing fee for the seller.

Posted by Ben Gerritsen, Mortgage Loan Originator (Mortgage Miracles Happen, NMLS ID: 1289680) over 5 years ago

I cut and pasted this into my "TO DO" file. These are very rudamentary and elementary steps we should all know but don't always implement. Great step by step guide.

Posted by John DL Arendsen, Crest Backyard Homes "ADU" dealer & Contractor (CREST BACKYARD HOMES, ON THE LEVEL GENERAL & FACTORY BUILT HOME CONTRACTOR, TAG REAL ESTATE SALES & INVESTMENTS) over 5 years ago

Every buyer needs this list- I have bookmarked your very informative post - thank you!

Posted by Joy Daniels (Joy Daniels Real Estate Group, Ltd.) over 5 years ago

I have designed an elaborate excel spread sheet that automatically calculates the closing costs for either buyer or seller.  Another shared cost is home owner's association and CDD fees.

Posted by Nan Jester, Realtor, Exit Real Estate Gallery (Exit Real Estate Gallery Jacksonville Beach, FL ) over 5 years ago

Eric - this is a great list.   I seem to be following everyone of your posts because they are truly valuable.  Thank you.  Shanna

Posted by Shanna Day Team Leader (UT & AZ), Keller Williams Realty (Keller Williams SLC (UT) and Keller Williams Realty EV (AZ)) over 5 years ago

It is pretty common in Louisville, KY for the seller to pay the closing costs especially for FHA/First time home buyers!

Posted by Sean Williams, Your Louisville Realtor (AcklesWilliams of Semonin Realtors) over 5 years ago

Just remember that many things are regional.  I learned this graphically a few years ago when my daughter was buying a condo in NC.  I am a Maryland Attorney and off the top of my head, I said, oh, about 6K in closing.  Which my daughter apparently wrote in stone somewhere. She called me a few days before closing (mind you she had found a great loan officer and I had found her a NC attorney) upset that they had screwed up, her costs were TOO LOW.   Yep, in NC the buyer doesn't pay transfer and rec taxes.   She had extra money at closing.   Fortunately, it wasn't the other way around......

Posted by Kunni Biener, Esq. over 5 years ago

I keep it simple for my clients. There are two groups of closing costs( expect min 1% up to 6% of the purchase price) :

  • Amounts paid to state and local governments. These include city, county and state transfer taxes, recording fees, and prepaid property taxes.
  • Costs of getting a mortgage. These include title insurance, survey, appraisals, credit checks, loan origination and documentation fees, commitment and processing fees, hazard and mortgage insurance and interest prepayments.

 

Posted by Inna Ivchenko, Realtor® • Green • GRI • HAFA • PSC Los Angeles CA (Barcode Properties) almost 5 years ago

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