Who Pays Closing Costs on a House?

What Are Closing Costs?

There are a number of associated costs that crop up when you’re buying or selling a home, and many find closing costs to be one of the more confusing line items they encounter. Many buyers assume that they’re responsible for all of them, while sellers are often unsure what they’re expected to cover at closing.

Closing costs are the fees and expenses paid to finalize a real estate transaction. They are paid at closing, when ownership of the home officially transfers from the seller to the buyer.

These fees are separate from the down payment, earnest money and ongoing housing expenses (like monthly mortgage payments or routine property taxes) and should be factored into your overall budget when entering the home purchase process. While they typically total between 2% and 5% of the home’s purchase price, the exact amount and who pays them can vary widely.

For example, on a $365,000 home, buyer closing costs in the 2% to 5% range could fall between roughly $7,300 and $18,250. Seller costs, including commissions and transfer-related fees, could be higher depending on the agreement.

What Closing Costs Do Buyers Typically Pay?

Buyers usually pay the costs associated with getting a mortgage and setting up escrow accounts. Cash buyers avoid lender-related fees, but they are still responsible for title services, escrow charges, and applicable transfer-related costs.

• Loan and Lender Fees: These are charges imposed by the lender to process, underwrite and fund the mortgage loan. They may include origination or underwriting fees, application fees and discount points if the buyer chooses to lower the interest rate by paying upfront.
• Appraisal and Inspection Fees: Buyers are generally responsible for third-party services required by the lender or chosen for due diligence. These often include the home appraisal, home inspection and credit report fees.
• Prepaid Costs and Escrow Funding: Prepaid costs are not lender profits but upfront payments for future obligations, like annual property taxes. They may also fund an initial escrow account deposit to ensure those future bills are paid on time.
• Lender’s Title Insurance: Lender’s title insurance protects the mortgage lender if there are legal issues with the property’s title. This policy is almost always paid for by the buyer because it safeguards the lender’s financial interest in the home.

What Closing Costs Do Sellers Typically Pay?

Sellers usually pay the costs associated with transferring ownership of the property to the buyer  and compensating the professionals involved in the sale.

• Real Estate Agent Commissions: Agent commissions are usually the biggest expense sellers pay at closing and are typically deducted from the sale proceeds. While they’re paid at closing, they’re often categorized separately from closing costs paid by the buyer.
• Owner’s Title Insurance: In many states, sellers pay for the owner’s title insurance policy, which protects the buyer from title defects. This practice is largely influenced by regional custom rather than federal requirement and can vary significantly by location.
• Transfer Taxes and Recording Fees: Depending on state or local regulations, sellers may be responsible for transfer or deed taxes and certain recording fees associated with transferring ownership of the property.
• Prorated Property Taxes and HOA Fees: Sellers typically pay their share of property taxes and homeowners association fees up to the day of closing. These costs are prorated so each party pays only for the portion of time they own the property.

Buyer vs Seller Closing Costs at a Glance

While every transaction is different, the typical division of closing costs often looks like this:

Actual responsibility depends on negotiation, loan type and regional practices.

Splitting and Negotiated Closing Costs

Not every closing cost is automatically assigned to one party. Many transactions are fluid and certain fees can be divided between the buyer and seller, or reassigned during negotiations. Escrow or settlement fees, title search fees and attorney fees in states where real estate attorneys are required are common examples. 

In competitive seller’s markets, it’s not uncommon for buyers to agree on absorbing more of the closing cost burden in an effort to make their offer more attractive. Alternatively, slower markets can give buyers the upper hand, as sellers may take on a larger portion of the fees to help move the deal forward. Because these items are negotiable, reviewing the contract carefully is essential to understand exactly who is responsible for each line item before closing.

Can the Seller Pay the Buyer’s Closing Costs?

Yes. Sellers can agree to cover some or all of the buyer’s closing costs through what are known as seller concessions.

Seller concessions are negotiated as part of the purchase contract and are often used when a buyer needs help covering upfront expenses, when a home has been sitting on the market for a while or when the transaction is happening during a broader buyer’s market. For example, if a buyer tries negotiating the purchase price of a home down but the seller would prefer not to, the seller may in turn offer to contribute a specific dollar amount or percentage toward the buyer’s closing costs, thus saving the buyer upfront money.

However, concessions are not unlimited. The maximum amount a seller can contribute depends on the loan type and, in some cases, the buyer’s down payment amount. Conventional, FHA, VA and USDA loans each set caps on allowable concessions, which are typically expressed as a percentage of the purchase price.

While concessions can reduce the buyer’s out-of-pocket costs at closing, they don’t eliminate the expense entirely. In some cases, the purchase price may be adjusted to offset the seller’s contribution.

Who Pays Title Insurance?

Title insurance is one of the most commonly misunderstood closing costs because two separate policies are involved, each protecting a different party in the transaction.

The lender’s title insurance policy protects the mortgage lender against financial loss if a title defect arises. Since this policy safeguards the lender’s interest in the property, it is typically paid by the buyer.

The owner’s title insurance policy protects the buyer’s ownership rights and remains in effect for as long as they own the property. In many states, it is customary for the seller to pay for this policy, but this practice is driven largely by regional custom and is often negotiated alongside other split or concession-based closing costs norms. In some markets, buyers may cover this cost instead.

Since title insurance practices vary significantly by location, buyers and sellers should confirm area trends and review their purchase agreement to understand who is responsible for each policy.

FAQs About Who Pays Closing Costs