Who pays closing costs and what are they?

Don’t be surprised by closing costs and title fees at your closing. We break down what is included in your closing costs and why they’re essential when you buy a home.

Who pays for closing costs?

If you’re a first-time homebuyer, you’re probably hearing a lot about closing costs as you advance further in the process. These costs usually amount to approximately 2% to 5% of the value of your entire loan. So, if you’re buying a $350,000 house and putting 20 percent down:
Home Cost: $350,000
20% Down Payment: $70,000
Loan Amount: $280,000
Estimated Closing Costs: $5,600–$14,000
It may seem like a large, unexpected expense, but it is essential to properly close on a home. Buying a home requires a lot of moving parts, which leads to additional expenses, from taxes and inspections to lender fees and legal costs. Understanding what these expenses are and who is responsible for them will ensure your closing goes smoothly and you aren’t blindsided by any unexpected fees.
You should know that you have the right to ask your lender and title company for an itemized breakdown of your closing costs. This is important in not only understanding what you are paying but ensuring you have time to spot any errors before your closing date.
Here is a list of the common closing fees you will pay when you buy a home.

Title Fees

Title company fees cover all the paperwork, funds, and legal requirements to transfer ownership of the home. This usually constitutes the bulk of your closing costs. In addition to the below costs, they may include miscellaneous costs such as a notary, courier fee, and title search.

Title Transfer Tax and Recording Fees

You pay a title tax when the property’s title is transferred from the seller to you. Recording fees are paid to the local government agency that handles rewriting these records to reflect you as the new owner.
Who Pays: Usually buyer, but negotiable

Escrow Fee or Closing Fee

This is paid to the escrow agent for holding all of the funds in escrow until the closing is complete. The escrow agent acts as a neutral third party who collects all the funds and doesn’t release them to everyone they are owed to until the transaction is completed to ensure everything is fair and each party is happy before any money is exchanged.
Who Pays: Usually split between buyer and seller, but negotiable

Owner’s Title Insurance

This covers you if someone, for any reason, challenges your right to ownership of the property, which is a surprisingly common occurrence.
Who Pays: Usually seller

Lender’s Title Insurance

This covers the lender in case a lien or dispute that wasn’t caught in the initial title search arises.
Who Pays: Usually buyer

Mortgage Fees

Who pays closing costs and what are they?
These are all the costs related to executing your loan.

Underwriting Fee and Processing Fee

These are fees your lending institution charges to research whether or not to approve your loan (underwriting fee) and to process the information from your loan application (processing fee).
Who Pays: Buyer

Brokerage Fee

If you work with a broker, this is the commission the broker charges for executing your loan. It’s usually between 0.5% to 2% of the loan amount.
Who Pays: Buyer

Prepaid Loan Interest

This is the interest that accrues on your loan before you make your first mortgage payment. Even if your first loan payment isn’t due for another 30 days, the clock is already running on the loan’s interest once you close the loan, so you may be required to pay this in advance.
Who Pays: Buyer

Loan Discount Points

If your loan has points, this is a percentage you pay upfront to lower your interest rate. Each “point” is equal to one percent of the total loan. Not all loans have points.
Who Pays: Buyer

Private Mortgage Insurance

If you put less than 20 percent down, your loan will be considered higher risk to the lender and you will be required to get private mortgage insurance (PMI) to protect the lender’s investment. This will be a recurring monthly payment that is calculated based on a percentage of your loan balance each year (usually between 0.25% and 2.5%). At closing, you will have to pay part of your PMI premium.
Who Pays: Buyer

Attorney Fees

Depending on the complexity of the sale and the laws in your state, you, the seller, and the lender will all have an attorney, some of you will have one, or no one will have one. While not all states require you to have a real estate lawyer, it’s advisable to hire one, especially if you’re buying without the help of an agent. They will help you navigate the paperwork and understand what everything you’re signing means. In some cases, you may be on the hook for your lender’s attorney fees as well.
Who Pays: Buyer (seller pays for their own lawyer if they have one)

Property Fees

Who pays closing costs and what are they?
These are all closing costs related to the property itself. Most sales can’t move forward until the property meets the below contingencies.

Inspection

An inspection of the property is required to ensure that it doesn’t have any large issues that affect the value of the home. This is also an opportunity for the buyer and seller to negotiate who will cover any necessary repairs before closing.
Who Pays: Usually buyer, but negotiable

Appraisal

An appraiser will confirm the fair market value of your home. This is required by the lender to ensure they can recoup their investment if you default on the loan. However, it’s important for everyone to be on the same page about the value of the property.
Who Pays: Usually buyer, but negotiable

Survey Fee

A surveyor will visit the property and confirm the boundaries of the property, that it meets zoning regulations, that no neighbors are infringing on the property, and check that the property meets its legal description. This may not be required in your state.
Who Pays: Usually buyer, but negotiable

Flood Certification Fee

This nominal fee will determine if the property lies in a flood zone. If it is, you may be required to purchase additional flood insurance.
Who Pays: Usually buyer, but negotiable

Taxes, Insurance, and Recurring Fees

These are recurring fees that you will have to continue to pay for as long as you own the property. The first payment will be due at closing.

Escrow Deposit

If you choose to have an escrow account connected to your loan, you will pay your lender extra each month and they will handle your tax and insurance payments for you. Otherwise, you are responsible independently for paying taxes and insurance.
Who Pays: Buyer

Property Tax

If you choose not to have an escrow account and pay your property taxes yourself, you usually have to pay your county’s taxes—based on your home’s appraised value—six months in advance.
Who Pays: Buyer

Homeowner’s Insurance

If you choose not to have an escrow account and pay your homeowner’s insurance yourself, you usually have to pay for the first six to 12 months at closing. You can also choose to pay this before closing directly to your insurance company.
Who Pays: Buyer

Homeowner Association Transfer Fees and Dues

If your property is controlled by a homeowner association (HOA), they will charge a fee to transfer ownership of the property to you. You will also have to prepay any HOA dues that they require at closing.
Who Pays: Seller covers transfer fees, buyer covers HOA dues