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What is Included in Closing Costs & Who Pays Them?

Closing costs are a huge part of any real estate transaction. First-time home buyers may be caught off guard by these costs, but you don’t have to be. You should know what to expect when it comes to closing costs, much like our post regarding other unexpected costs when selling a home. Understanding how much closing costs will be and who will pay them is important. You have to be able to plan your budget when buying a house and you don’t need any big surprise. Here’s a look at what to know about closing costs.

How Much Will Closing Costs Be?

Closing costs can vary and usually do depending on the cost of the home. They include several fees from the appraisal fee to the home inspection fee to administrative tasks to the origination fee. The list can be very long and may vary a bit, depending on the lender and the property.

Typically, the closing costs will range from about 2% to 5% of the purchase price. If the home costs $300K, you can expect closing costs to range from $6K to about $15K.


Who Pays the Closing Costs?

Depending on how you define closing costs, both the buyer and the seller will have fees to pay. Typically, the buyer has more line item expenses, while the seller has a larger percentage to pay.

The seller will handle the real estate commission, which is the largest amount paid at closing. They will also pay the balance of their property taxes if this hasn’t been done yet, and any prorated HOA dues.

Buyers, on the other hand, will handle more line items, which may be rolled into the mortgage. These may include:

  • Title Insurance
  • Appraisal Fee
  • Origination Fee
  • Flood Certification Fee
  • Credit Report Fee
  • Recording Fee
  • Notary Fee
  • Tax Servicing Fee
  • Prepaid Interest
  • Prepaid Insurance

You will want to go through these feet line by line with your lender to ensure you understand what you’re paying.

The buyer can expect to pay between 2% and 5% of the purchase price in closing costs. The seller will pay more, usually ranging between 5% and 10% of the purchase price.

Negotiations for Closing Costs

As a buyer, it may be possible to negotiate the closing costs. You may be able to get the seller to pick up some of the closing costs or give you a credit for the closing costs. It’s actually better to get the seller to cover some of the closing costs than to get a reduction in the purchase price.

Closing Costs Allowances

It’s also possible to get an allowance for closing costs. This will vary from one lender to another and the program you’re applying for. An FHA Loan will only allow a 3% seller’s concession, while a VA loan will allow the seller to cover the entire amount of closing costs for the buyer.

Conventional loans not backed by the government will vary from one lender to another. Make sure you understand the closing costs allowances before you choose your lender. It can make a big difference in the home buying process.

Closing costs can be rather confusing. As you go through the process of buying or selling a home, speak with your Jacksonville real estate agents and mortgage lender to ensure you understand what you will be responsible to pay and what it covers.

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