Who pays closing costs — buyer or seller?

Buyers and sellers are each responsible for their own set of closing costs on a home sale. It's common for buyers to ask the seller to pay some of their closing costs, but sellers aren’t obligated to cover them, and may not depending on the housing market — like whether it's a buyer's or seller's market.

What are closing costs?

The purchase price isn't the only number you need to consider when buying or selling a house. You also have to pay closing costs, which are the upfront fees associated with a real estate transaction and you’ll need to be able to cover them at the time of closing.

Closing costs are made up of various other costs and fees — like mortgage lender fees, appraisal fees, attorney fees — and what they entail specifically depends on whether you're the person buying or selling the house. 

→ Find out which closing costs are tax deductible

What are closing costs for a buyer?

When you're buying a home, you should be especially aware of closing costs you'll have to pay since you'll need to cover them up front (unless you roll them into your mortgage), just like with your down payment.

Here are seven common closings costs for buyers:

Mortgage closing fees

Lenders charge borrowers for processing and funding a mortgage through a loan origination fee and buyers can try to negotiate it. You may also be charged a non-refundable application fee.

Discount points

Some people "buy down" the interest rate on their mortgage with discount points. Lowering your mortgage rate can lower your monthly payments, but any discount points you purchased will be included in your closing costs when you buy a home.

Inspection and appraisal fees

Buyers typically pay for the home inspections to ensure their prospective home is in the condition they expect. Buyers are also responsible for the cost of the appraisal as well as other third-party fees associated with the mortgage application process, like for property surveys and flood certification.

Prepaids insurance and taxes

Buyers will also need to make a certain number of upfront payments (commonly called “prepaids”) for: 

• Homeowners insurance
• Property taxes
• Mortgage interest
• Private mortgage insurance

These are common ongoing costs to owning a home, but you’ll be expected to pay a portion of them when you close — usually a few months worth, or however much covers you until your first mortgage payment. 

Title search and title insurance

While the seller pays for most costs associated with the title, the buyer is usually responsible for covering a title search and title insurance policy for the lender, which will protect their investment in the home in case an ownership claim pops up down the road.

Recording fees and transfer taxes

The buyer will pay for the cost of any deeds or other paperwork required by the local government (usually the county) so that their ownership of the home is in the public record.

Some, not all, states also charge transfer taxes, another fee for transferring the title from one person to another. 

Prorated HOA fees

If your new home has a homeowners association, you’ll need to pay the HOA fees that will accrue between your closing date and the next payment date. This ensures that the homebuyer and seller only pay for the HOA when they are the legal owner of the home. Depending on the details of the contract, the buyer may also need to pay an HOA transfer fee. 

How much are buyer closing costs?

Closing costs for the buyer usually amount to 2% to 5% of the home’s purchase price, depending on the home and where you live, which can affect the factors that go into each cost outlined below.

When buying a:

• $300,000 home, you can expect to pay $6,000 to $15,000 in closing costs.
• $400,000 home, you can expect to pay $8,000 to $20,000 in closing costs.
• $500,000 home, you can expect to pay $10,000 to $25,000 in closing costs

How to save on closing costs

You can lower your closing costs as the buyer by rolling them into your mortgage in exchange for a higher interest rate. 

Homebuyers can also try to arrange for the current homeowner (the seller) to cover some of the costs by asking for seller concessions, which are available for both conventional loan and government-backed loan (e.g., FHA and VA) loans. However, there are some limits on the maximum amount of seller concessions depending on the type of mortgage you’re getting, how much money you put down, and the type of property you’re buying.

→ Learn about VA loan closing costs

What are closing costs for a seller?

Before a seller can pocket their home sale earnings, the money will be allocated towards paying closing costs first. 

Here are the closing costs typically covered by the seller:

• Prorated state property taxes: Because we get billed for state property taxes only a few times a year, the seller is responsible for the charges that have accumulated between their last payment and the closing day.
• Prorated HOA fees and transfer fees: Just like with property taxes, the home seller needs to cover the HOA fees they accrued in the lead-up to closing. Depending on the details of the purchase contract, the seller may also need to pay a fee to their HOA to transfer the property to the buyer.
• Title and associated feesThe seller will pay a title company to do a title search and transfer the title to the home buyer. Sellers also typically handle the new owner's title insurance. Many title companies also handle the escrow account for the transaction, which they'll include in their fee to the seller.
• Attorney's fees: Some states require real estate attorneys to complete a home closing. 
• Real estate commission: Home sellers are responsible for any fees charged by the real estate agents involved in the home sale, usually around 6% of the sales price.
• Real estate transfer tax: Depending on the location of the property, there might be a tax on transferring ownership of the home, which the seller will cover.

→ Find out how much closing costs are for sellers

Who pays closing costs when selling a house by owner?

Some people choose to sell a house on their own without a real estate agent in efforts to save money on commission fees. If you're doing a FSBO sale, you'll still be responsible for seller closing costs — and this may include paying commission for the buyer’s agent if the person buying your home brings their own realtor or broker. 

You can still try to get the buyer to shoulder more closing costs (including agent fees and commission) but it’s a difficult ask. Unless you have negotiating experience, it’s unlikely that you’ll be able to get them to agree.  

→ Learn the pros and cons of selling a house without an agent