Closing Costs Typically Paid by the Buyer
While home sellers often shoulder a variety of fees, buyers also incur costs tied to finalizing a property purchase. It's important to note that these expenses can differ based on loan requirements, local regulations, and the specifics of the deal. Below is a rundown of common costs your buyer may pay, from earnest money deposits and home inspections to appraisal and loan origination fees. Understanding these buyer-side expenses can help sellers appreciate the full scope of the transaction and anticipate any negotiation points.
Earnest Money Deposit: A good faith deposit made by the buyer to demonstrate their seriousness about purchasing the property. This deposit is typically held in escrow and applied towards the down payment or closing costs at closing.
Home Inspection: The cost of hiring a professional inspector to evaluate the condition of the property. This inspection helps buyers identify any potential issues or defects with the property before completing the purchase.
Appraisal Fee: The cost of having a licensed appraiser assess the value of the property. Lenders often require an appraisal to ensure the property's value aligns with the loan amount.
Down Payment: A percentage of the purchase price that the buyer pays upfront. The down payment amount varies depending on the type of mortgage and lender requirements but is typically between 3% and 20% of the purchase price.
Loan Origination Fees: Charges imposed by the lender for processing the mortgage application and underwriting the loan. These fees are typically expressed as a percentage of the loan amount.
Title Insurance: Insurance that protects the buyer and lender against any defects in the title of the property. The buyer usually pays for their lender's title insurance policy and may also opt to purchase an owner's title insurance policy for additional protection.
Closing Costs: Various fees and expenses associated with closing the real estate transaction. Closing costs may include attorney fees, escrow fees, recording fees, transfer taxes, and prepaid expenses such as property taxes and homeowners insurance.
Property Insurance: Insurance coverage to protect the property against damage or loss. Lenders typically require buyers to purchase homeowners insurance before closing.
Property Taxes: Pro-rated property taxes that the buyer owes for the portion of the year they own the property. These taxes are typically paid at closing and may be held in escrow by the lender to ensure timely payment.
Homeowners Association (HOA) Fees: If the property is part of a homeowners association, the buyer may need to pay HOA dues and any associated transfer or initiation fees.
Mortgage Insurance: If the buyer's down payment is less than 20% of the purchase price, they may be required to pay for private mortgage insurance (PMI) or mortgage insurance premiums (MIP) for FHA loans to protect the lender against default.
