Understanding Closing Costs

As we spring forward into the active homebuying season, there are plenty of good deals to be found, thanks to continued low interest rates and slipping home prices. But do you have saved enough in your bank account to cover closing fees? We'll examine who pays for what at the closing table and how buyers can cover these costs. What's the average closing costs you can expect to pay?

Who pays for what?
You have picked the perfect place to live, you've saved up a nice down payment, you're pre-approved for a loan and you're inching ever closer to finding the right house.


But how much do you know about the closing process itself? There's more than just price to consider. There are a slew of associated expenses to pay, plus taxes, insurance, appraisals and inspections. Whether buying or selling, you will undoubtedly see a bunch of little charges that collectively start to equal a big, four-digit number.


In general, the seller normally pays for most of the closing costs. But it can vary alot depending on the market conditions, location and the seller's motivation. In today's buyers market, many transactions are subject to negotiation.


Here's a common outline of what buyers and sellers are expected to pay:


Typical Buyer Expenses

• One half of escrow fees.
• Home inspection and any other inspections such as sewer line, roofing or structural.
• Survey to identify boundardies and easements.
• Appraisal for the lender to determine value for a good loan.
• Hazard insurance premium for the first year.
• Recording fees and notary fees for documents.

Typical Seller Expenses

• One half of escrow fees.
• Title insurance, to assure the lender that the property has a free and clear title.
• Repairs or remediation of any harzard or damage.
• Real-estate commission for seller's and buyer's agent.
• City and county transfer fees.
• Homeowners association transfer fees and any unpaid balance.
• One year home warranty to ease the buyer's doubts.
• Payoff for any bonds, special assessments and existing liens.

The tab for closing expenses can vary widely, from about 1% of the purchase price to 3% for Federal Housing Administration loans that require a mortgage-insurance premium and additional lender fees.


Many buyers are now requesting sellers to help assist them with covering these steeper FHA fees, in essence lowering the purchase price of the home.


However, there isn't as much room for expense negotiation with short sale or bank-owned properties. In fact, most don't provide a home warranty, and many won't cover any repair work unless it's a hazard to the buyer. Of course, the tradeoff is that these homes are often priced at a significant discount compared to normal listings.