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Who Pays What Closing Costs - What Is Closing?

Updated: Mar 10


who pays what closing costs

Closing costs are a part of every real estate deal. Even “For Sale by Owner” deals. When you get to the closing date, it’s important to know what you will be paying and what’s involved so that you’re ready and not bombarded with unexpected costs.


If you make it to your closing date, you’ve successfully finished the process of buying a new home. If you want your closing process to remain smooth and as stress free as possible, you need to continue reading in order to be the most prepared that you can be, come closing time.

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Know what closing is and who pays closing costs before you buy or sell your home, and the closing process will be a lot easier for you.



What Is Closing?

Closing is the final step in buying and selling a home or property and when it’s finally yours! (Or not yours anymore)
This is the step that involves the transfer of title from the seller to the buyer.

Simply, everything in a real estate transaction comes to a close.


Everything you do from the point of making or accepting an offer on real estate all leads to closing. The mortgage closing process can vary from state to state, but you and the opposite party (buyer or seller) will negotiate and settle on a closing date.


The closing step is concluded usually at a local title company, or in some cases, a lenders office or escrow company. This is held wherever the office of the settlement agent is located. More times than not you will go to a title company, which is the company that really insures ownership of the property.


How Long Until Closing?

Other factors will come into play when selecting your closing date, but it usually takes about 30-45 days from the moment a contract is accepted. I know, it can be agonizing having to wait get your dream home! The wait is worth it though!


It can take longer to get to closing due to everything that needs to take place when transferring the title to a new owner. Typically, it takes longer when you are applying for a mortgage, rather than a cash deal (and depending on the type of mortgage you take out).


Many times, the closing event is delayed. Actually, 46% of delays are due to, wait for it, financing issues.

You can prepare by talking with a lender before making an offer on a home. This saves any frustration you might have if a deal falls through.



What You Need To Bring To Closing

There are plenty on your plate that are definitely essential to have completed prior to closing. You also need to prepare to bring any documents and identification needed at closing.


I recommend a checklist but consult with your agents and lender on anything you need to bring to closing. Typical items include:

  • Make sure your agent or lawyer is present

  • Personal Identification, like a driver’s license and one other

  • Bring a copy of your purchase agreement

  • Homeowners insurance proof

  • Certified or cashier’s check made payable to the title or closing company. This is how you will be paying closing costs.


Make sure to consult with your lender and agent on any other outstanding documents that may be needed, and then add those to your checklist. Trust me, this makes it so much easier when you’re organized.


Many times, your agent or lender will have a check list for you as well. If you don’t want to make your own, just ask for one!



How Are Closing Costs Calculated?

Closing costs

When you begin a real estate transaction, and you submit a mortgage application, the lender should give you a disclosure of estimated closing costs. This is called the Loan Estimate. You are supposed to have this by no later than 3 days after your mortgage application. It will detail what you may have to pay on closing.


This amount will vary by the time the actual closing event takes place, but it gives you a close figure of what you will be paying at closing.


You should always have a Closing Disclosure at-least by 3-days from closing. This is required by TRID. The following are included in closing costs.


Earnest Money

When you make an offer on a home and that offer is accepted, the buyer in many cases has to put down a good faith deposit, or what is also known as earnest money (so any person named earnest is always of good faith, right?).


Earnest money is paid at the beginning when the buyer and seller enter into a purchase agreement. The purpose is to show you’re serious about buying the property. However, if you put a large enough down payment on a mortgage you may not even need to pay earnest money.


If the sale falls through, the seller will have to re-list the house and could result in a financial hit. It protects the seller if the buyer has to back out or is refundable to the buyer if the seller backs out of the deal.


If the transaction goes well and is successful, the buyer will have the earnest money refunded to the mortgage as a part of the down payment. How much you pay depends on how trustworthy you want to appear. The typical amounts you would put down for earnest money is between 1%-3% of the home price. The more earnest money, the more serious you are about the deal.


Property Related Fees

  • Appraisal Fee

  • Inspection Fees

  • Property Taxes

  • Escrow Fee

  • Title Insurance (Typically optional)

  • HOA Fees (if applicable)

  • Survey Fee

  • Agent Commission


Mortgage Related Fees

  • Points (or discount points)

  • Prepaid Interest

  • Lender Fees

  • Loan Origination Fee

  • Application Fee

  • Mortgage Insurance Payment (MIP or PMI)

  • Flood Determination Fee

  • Homeowners Insurance payment

  • Underwriting Fee


There definitely might be more involved, but these are what’s commonly involved in totaling your closing costs. Make sure to check with your lender or agent to find out what else is involved depending on your state.



Who Pays Closing Costs?

who pays the closing costs

Now that you know what costs are involved with calculating your total for closing, you need to also be aware that you aren’t always required to pay every bit of it.


These costs are most times shared. The bulk of closing cost will lie mostly on the buyer, but sometimes in a deal the closing costs can be shared differently according to the terms of the purchase agreement.


This can be very confusing to understand, mainly because the most solid answer to this question is, it depends!


In some cases, your realtor may negotiate for the bulk of closing costs to be absorbed by the seller in exchange for something else like the seller not having to repair a dishwasher or siding issue.


This depends on how you negotiate and what deal is made.

Most of the time, any mortgage related fees are paid by the buyer. These items are most likely to be paid by the buyer:

  • Any Insurance Fees

  • Appraisals

  • Home Inspections

  • Property Taxes

  • HOA Fees


Typical Items for the seller to pay include:

  • Agent Commissions

  • Sometimes Property Taxes (if taxes have not yet been paid for the year)

  • Often times the Title Insurance


The buyer will almost always pay more in closing costs then the seller. There may be other things included such as credits and debits. In a real estate deal, during negotiation the buyer and seller will negotiate if certain things should be credited or debited to the other party.


For example, the buyer may submit an offer contingent on the fact that the seller fixes a minor issue like a shop door, or at least pays for the issue to be fixed. This would be a credit to the buyer and a debit to the seller. These are usually anything that the two parties negotiate on to finalize a deal.


Make sure to look over the Closing Disclosure when you get it prior to closing. This will tell you everything you are going to pay at closing. If there is any discrepancies, make sure to notify your agent and lender.



Real Estate Closing Documents Involved

real estate closing documents

When you finally make it to closing, all you do now is sign paperwork to finalize everything, and then the home is finally yours! Or out of your hands!


Documents involved obviously include your Loan Estimate and Closing Disclosure. You want to have your Closing Disclosure with you at closing, as this discloses everything you will be paying, and to make sure everything lines up correctly with what you agreed upon.


Mortgage Deed

This is an agreement made between a homebuyer and a lender. It basically agrees that the lender holds legal title to the home that is purchased, while of course the home buyer will make monthly payments and will then receive legal title once the mortgage is satisfied. The mortgage deed or deed of trust actually legally secures the home as collateral to the lender.


This is what gives the lender the legal right to foreclose on the home in the case of a default payments.


Promissory Note

A promissory note is sometimes confused with the mortgage deed, or deed of trust.


A promissory note is a written agreement to repay the mortgage. The deed of trust legally secures the home, and the promissory note agrees that you will repay the debt and will receive legal title at the end.


The DEED!

This is a document that is signed to actually transfer the legal ownership rights to the new owner.


Calculating Closing Costs For You!

So, with all that said, it’s nice to know how much you can expect to pay at closing without actually having to apply for a mortgage and go through the commitment process. However, keep in mind that any estimated closing costs you find on your own will not be the same as what lenders calculate at closing.


You can definitely find an estimate, but it won’t be the actual amount due as certain things can and will change.


To find out estimated closing costs, use this amazing tool for calculating closing costs. You may need to contact a mortgage loan officer and ask what interest rate you might be paying. Then you simply plug in your information in the closing costs estimator and there you have it, your estimated closing costs.


By estimating, you are preparing yourself before making any sort of deal, so that you can be ready long in advance to pay any costs associated with closing.


With all this being said, how are closing costs calculated? You should know this after reading, but simply it is calculated by totaling all the fees and insurance payments involved in purchasing a new home. Go back to the section on how closing costs are calculated to find out more.


Home sellers should expect to pay any property taxes that are due up to the point of closing. Buyers and sellers both pay closing costs in buying a home or selling one. Both buyers and sellers will pay something on closing day.



Final Thoughts

If you prepare yourself beforehand, the real estate deal will be a lot less stressful and will increase the odds of you buying or selling your home. Never be afraid to contact real estate professionals to help guide you.


Hopefully you have been saving for your new home to help with closing costs. If not, check out this article on how you can start saving for your next dream home now. And always remember to consult with your agent and mortgage loan officer about anything you may not understand, and to make sure if there's anything else they may need.


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