Homeowners and buyers need to know the typical buyer closing costs and seller closing costs before negotiating a deal. By working with a buyer’s agent and real estate attorney to determine a home’s sale price, these professionals can help mediate closing costs and inform the seller of the average fees.
So — how much can a homeowner expect to pay when selling a house? Let’s see the types of closing costs and how data like the commission rate, home price, title insurance policy and real estate agent commissions can influence the costs.
Types of Closing Costs
The first thing is first — what are closing costs? Understanding the different types of closing costs can be helpful to home buyers and home sellers. Knowing what they are, how much you will pay, and avoiding overpaying can help homeowners and future homeowners avoid excess fees.
Closing costs are the necessary fees that home buyers will pay to the lender so they can afford to purchase a home. Lenders typically charge fees to home buyers that make it lucrative to give a loan to someone who cannot afford to purchase a house with their own funding.
The closing costs will cover necessary fees, such as appraisal fees and home title fees. However, the total closing costs a person has to pay depend on the location where they live, the loan amount, and the type of loan.
The most common types of closing costs include an appraisal, attorney fees, closing fees, application fees, courier fees, credit reporting fees, points, escrow fees, FHA mortgage insurance funds, certification fees, Homeowners fees, loan origination fees, lender’s title insurance fees, owner’s title insurance fees, prepaid interest charges, property tax fees, and survey fees.
The application fee typically is as high as $500 for homeowners who need to apply for a mortgage or loan. Next, the appraisal fee is when home buyers need to use a third-party management company to have a professional look at the one to see how much a property is valued.
Another type of closing cost that home buyers or sellers will have to pay is the attorney fees. In certain states, individuals cannot get a home loan without using a specific lawyer or attorney. Furthermore, along with the attorney fees, individuals will also have to pay the closing fee (to the escrow company), courier fee (for the mortgage documents), and credit reporting fee (for submitting a credit score).
The following types of closing costs include escrow funds, FHA mortgage insurance, Homeowners fees, and homeowners insurance. The escrow funds include reserved money for property taxes and insurance to help buyers pay their mortgage without going into debt.
In addition, the FHA mortgage insurance premium typically costs about 1.75% of a person’s base loan, which can increase the overall closing costs. Lastly, the Homeowner’s fees sometimes get covered by home buyers, but other times, sellers must cover these fees according to specific HOA policies.
The last types of closing costs that home sellers need to be aware of include insurance fees. Various types of insurance might be needed to sell a home, such as a lender’s title insurance (to repay the bank), owner’s title insurance (to avoid any lawsuits against property), and private mortgage insurance (to help you avoid defaulting on your loan).
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Typical Costs of Closing Costs
Now that you know the basics of closing costs, it can be helpful to know how much you might pay for each of these fees so you can set aside the correct funds. Buyers are not the only individuals who have to think about closing costs — sellers also need to bring funds and cash in hand to finalize the home sale.
On average, closing costs will make up around 3-6% of the total loan amount for an individual. If a person takes out a mortgage of about $300,000, the closing costs come to between $9,000 and $18,000. Furthermore, the average closing cost varies by state depending on where you lie on the type of loan required.
For example, the average closing costs for seller, excluding taxes in Alabama, come to $2,141.32, whereas the average closing costs for seller come to a whopping $5,366 in California.
One of the most common closing costs is the attorney fees. If a seller uses a realtor or an attorney to sell their house, they are the ones who are responsible for paying the fees to the attorney — not the seller.
The second common closing cost includes paying back conventional loans. The percentage of the amount that must be paid is the purchase price or the appraised value. For residences, homeowners must pay 9% of a down payment of 25% or more, or 3% on a down payment of less than 10%.
The third common type of closing cost is the application fee. This fee can be as high as $500 but depends on the deposit and the loan request. Furthermore, an appraisal typically costs around the same amount, ranging between $300 and $600, for a professional to look at the home the seller is putting on the market.
Other common fees that can influence the closing costs include the closing fee, courier fee, credit reporting fee, rate lock fee, recording fee, and survey fee. Although all of these fees are typically under $1,000, they can add up over time. For example, the courier fee is around $25, the Homeowners transfer Association fee depends on specific HOA policies, and the pest inspection fee comes to $100.
Regarding FHA loans, homeowners must pay 6% based on the appraised value or the purchase price. Furthermore, another common type of closing cost is VA loans. These loans typically range upwards of 4% of the purchased price or appraised value.
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Average Closing Costs for Seller
As you can see, the typical closing costs depend on the type of closing cost (fees, appraisals, loans, etc.) and the number of closing costs that a home seller utilizes. For example, someone who needs a higher loan and uses multiple attorneys will have higher closing costs than those who can sell a house without using professionals or higher loan numbers.
Plus, the closing costs for the seller depend on the state they live in. For example, Pennsylvania has one of the highest closing costs, reaching upwards of 7% in certain parts of the state. In this case, sellers typically pay between 1-3% of the total 7% of the closing costs.
On average, the closing costs for a seller come to between 8 and 10% of the sale price of the house. The fees that home sellers need to take into account while selling a house include the biggest fees, such as the agent commission, HOA costs, property taxes, escrow fees, transfer taxes, title insurance fees, and attorney’s fees.
One of the biggest fees in terms of the closing cost for a seller includes the real estate commission. The commission is usually 2-3% of the total amount offered during the sale, with some agents requiring as high as 6%.
Furthermore, transfer tax can add up over time. The transfer tax varies based on the median value of the home and the state in which a person lives. For example, Washington, DC, has a very high transfer tax of $4,212.
In addition, the owner’s title insurance is a few thousand dollars depending on the reissue rate, interest in thor property, and creditor’s fees. The average owner’s title insurance fees come to between $1,000 and $4,000 on average.
Escrow and closing fees are as high as $2,000 depending on where the person lives, office expenses, and the price that is required to manage the transaction of the house sale. Other high-priced fees include prorated property taxes depending on the state, HOA fees, credit in the closing costs, and attorney’s fees — which are required in 21 out of 50 states to finalize a home sale.
All of these extra fees and closing costs for sellers show homeowners why cash sale makes sense!
Should the Seller Pay Closing Costs?
There has always been a big debate as to whether sellers are responsible for the closing costs. It seems as though home buyers should pay for these fees, but the real question is — should the seller pay closing costs at all, or should buyers be solely responsible? Who pays closing costs?
Sellers pay fewer costs than buyers, but they still have to be responsible for closing costs. Unfortunately, sometimes, this means that sellers actually pay more money during the closing period than the buyers. Sellers will pay the commission of both the buyer and seller’s real estate agents, meaning they will have to pay at least 3% to each agent — upwards of 6% per agent!
Furthermore, sellers will have to pay for the insurance and the property taxes. So, how do you lower the closing costs?
Sellers can negotiate the number of seller’s concessions they will have to pay. By talking with the buyer forehand and agreeing on a deal, sellers can lower closing costs and avoid paying fees such as the loan amount and the transaction fees.
However, sellers can sell their houses quicker by paying higher seller closing costs. Although they will pay more upfront, they will also get a better deal on their home by keeping the house on the market for only a short time period. If there are multiple bids on a property, sellers can actually benefit from paying the full closing costs.
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