What Are Closing Expenses and Am I Responsible for Paying Them?

Closing expenses, or closings costs, are part of the process of finalizing the sale of a house. In some cases, the closing costs might be paid by the seller, and in other cases by the buyer. It will depend on the nature of the fees, and how good a deal the parties negotiate with one another.  The Seller and Buyer typically have closing costs.  

If you have used a Realtor, one of your expenses will be the commission on the final price of the property. This will usually be 6% or more of the value of the home. The seller is typically responsible for paying all commissions.  The listing agent and buyer's agent typically split the percentage that is agreed upon in the listing agreement.  Other fees vary depending on where you live, but anticipate approximately 6% to 10% of additional costs.

Other charges will be itemized on the Settlement Statement, for both sellers and buyers.

These fees will not have to be paid in cash, but rather, out of the price of the house. However, it is important to factor them in from the outset so you don’t end up with a much smaller profit on the sale of your house than you had hoped for.

The most common closing costs are:

1. Loan payoff fees

The seller will be responsible for any loan payoff on the home.  The mortgage loan payoff will usually be somewhat higher than the actual remaining balance on your mortgage because of early repayment penalties. These can vary depending on how long you have held the mortgage. If you have a home equity loan or line of credit, you must also pay this off in full, and there may be some fees involved.

2. Transfer taxes and recording fees

State or local governments will usually charge a tax and fee in order to transfer the title for the property from one owner to another.

3. Title insurance fees

Title insurance protects the owner of property and the mortgage lender against future claims for any unknown issues with the title to the property at the time of sale. Issues may include fraud, forgery, unpaid property taxes, judgments, liens, or other encumbrances that were not discovered during a search of the property’s title history, which should have been conducted thoroughly before the sale.

Sellers typically pay the owner's title insurance premium, as an undertaking that they have been honest in all their dealings with regard to the sale.  If the buyer is financing the home, then they most likely will pay for the lender title policy.  

4. Legal fees

If you have an attorney represent you at the settlement, you will need to pay them. Fees vary depending on the number of services. In some cases, one attorney might be used for both sides, in which case the parties could split the costs.

Additional closing costs for sellers

Additional closing costs for sellers can include outstanding matters related to the property, such as:

* Tax liens or judgments against the property
* Unpaid homeowner association dues
* Pro-rated property taxes up to the date of the sale
* Back taxes

Some closing costs may be related to essentials that need to be cured before sale can go through, such as certain repairs, termite issues, and so on.

Additional costs for buyers

Additional costs for buyers can include:

* Lender's Title Insurance
* Lender Origination Fee
* Appraisal Fee