How do closing costs work? | Seller closing costs | Buyer closing costs | Full pricing breakdown | How to save on closing costs
When you buy or sell a house, you must pay a set of taxes and other fees called closing costs. These expenses cover the cost of finalizing the sale and transferring the property's title into the buyer's name.
Seller closing costs typically add up to 1-3% of the sale price, while buyers generally owe around 3-5%. How much you'll actually pay will depend on the laws and conventions in your local area, as well as your negotiations with the buyer or seller.
Real estate closing costs are expensive enough on their own, but they're only a portion of what you'll pay when you close on a home. For example, sellers typically cover realtor commission fees. And buyers must have enough cash set aside to afford their down payment.
If you want to keep more money in your pocket on closing day, your best bet is to work with a real estate agent who offers built-in savings. Clever can help you find one!
Clever is a free service that matches you with top local agents from trusted brokerages like Keller Williams and Berkshire Hathaway. Clever also negotiates HUGE savings for you. With Clever, you can sell your home for 1.5% listing fee — or buy a house and get cash-back.
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How do closing costs work?
At the end of a typical home sale, both the seller and buyer pay an assortment of taxes and transaction-related fees that are collectively called "closing costs."
What real estate closing costs actually apply can vary widely depending on where you live. Local regulations and real estate laws have a big impact on what fees are charged, how much they cost, and even what they're called.
The major types of fees you'll encounter at closing are:
- Loan costs: Fees that the buyer's lender charges to process and approve the loan. Loan costs are usually paid by the buyer.
- Prepaid costs: An assortment of costs that the lender requires the buyer to pay in advance, like homeowners insurance and property taxes.
- Title and settlement fees: Costs paid to the settlement agent (often an escrow or title company) as well as any fees associated with the title search and the title insurance premiums. These fees are often split between buyers and sellers.
- Transfer taxes and recording fees: When you officially transfer ownership, your state, county, or city will charge taxes and fees. Sometimes these fees are split, though it's fairly common for the seller to cover these costs.
Another thing to note about closing costs: it's common for buyers — especially first time homeowners who may not have as much cash — to ask sellers to cover their closing costs.
This lets buyers reduce the amount of cash they have to bring to closing. Sometimes, sellers even offer to pay their buyer's closing costs proactively to expand the pool of buyers who can afford their home.
» MORE: Should you help cover your buyer's closing costs?
Seller closing costs
The exact closing costs that you can expect to pay as a seller varies depending on where you live and what you negotiate with your buyer. That being said, the following are costs that sellers can typically expect to pay at closing.
Title and escrow charges
Title charges refer to an assortment of fees related to the documentation and preparation involved in officially transferring home ownership by the title company, as well as the cost of title insurance. It is common for buyers and sellers to split these fees.
In addition to the costs associated with preparing the home's title, the title company also charges a fee — usually called a settlement fee — for mediating the transaction.
» MORE: How title insurance works
Transfer taxes and recording fees
Local governments — usually at the city or county level — keep track of home ownership records, and they often charge fees and/or taxes when property changes hands. These costs are often paid by the seller and can vary dramatically depending on where you live.
» MORE: How much do transfer taxes cost?
Prorated property taxes
Because property taxes are often charged in arrears — meaning you pay them for the time you've owned the home at the end of the pay period — sellers usually have to credit the buyer a prorated amount to cover these costs. You've lived in the home for half a year, so it wouldn't be fair for the buyer to pay for a full years' worth of property taxes!
Prorated property taxes are different from other closing costs because they are a cost you would have had to pay even if you didn't sell your home.
Other seller closing costs
There are many other possible closing costs that sellers may be responsible for. However, they may not apply as often; it depends on your exact situation. These include:
- Homeowners association (HOA) fees
- Home warranty fees
- Mortgage prepayment fees
No matter where you live, your most expensive home selling cost will likely be realtor fees. Realtor commission rates are usually around 6%. On a $500,000 home sale, you could owe up to $30,000 in commission fees. That's a HUGE chunk out of your potential profits!
The "standard" 6% commission predates the internet, when homes were cheaper — and realtors had to work harder to find clients and potential buyers.
At Clever, we connect top-rated real estate agents with sellers like you at zero upfront cost to the agents — so they’re willing to pass savings along to you.
You get full service and a pre-negotiated listing fee (half the usual rate), which can save you tens of thousands at the closing table. Clever is free to use with no obligation. Give it a try today!
Buyer closing costs
The lion's share of what you pay in closing costs as a buyer will be fees related to your mortgage. Additional fees and charges may apply as well, depending on where you're buying and what you work out with your seller. Below, we've outlined the costs that most buyers can typically expect to pay at closing.
Prepaid costs
Mortgage lenders usually require that buyers pay for some of the ongoing home ownership costs upfront at closing. These typically include property taxes and homeowners insurance and any mortgage interest that may be due from the time of closing before the first mortgage payment.
Title and escrow charges
These charges cover the cost of research and documentation to ensure a clean and legitimate transfer of the home's ownership. This also includes the settlement fee charged by the title company (or escrow company or real estate closing attorney) who conducts the closing. These charges are commonly split between the buyer and seller.
Lender fees
The most expensive closing costs for buyers will likely be lender fees. These are fees charged by the buyer's mortgage lender for originating and underwriting the loan. This can also include other costs payable in connection with the loan, such as appraisal fees, survey fees, and any mortgage points paid.
» MORE: How long does it take to get pre-approved for a mortgage?
Other buyer closing costs
In addition to the closing costs listed above, the buyer might also be responsible for paying:
- Natural disaster certification fee
- Pest inspection fees
- Real estate attorney fees
Reminder: buyers often negotiate to have sellers cover their closing costs. This can limit the amount of cash you need to bring to closing. However, there's likely a limit to how much help you can receive, which could be as low as 3% depending on what kind of mortgage you're getting.
» MORE: The best ways to save on closing costs
Closing costs: Full pricing breakdown
The tables below show typical closing costs for buyers and sellers. Buyers and sellers also usually split the settlement or closing fee, which can cost anywhere from $250 to $1,500.
However, who pays for what (as well as the closing costs that will be charged) can vary depending on where you live. Check with your realtor or a local title company for details on what's common in your area.
Closing costs sellers usually pay
| Seller closing cost | Typical fee |
|---|---|
| Transfer taxes | Varies |
| Owner's title insurance | Around 0.4% of home sale price |
| Deed recording fees | Varies |
| Prorated property taxes | Varies (depending on tax rate and close date) |
| Mortgage prepayment penalty | Varies |
| Mortgage payoff | Varies |
| Credits towards buyer's closing costs | Varies |
» MORE: Get a net sale proceeds estimate with a net sheet
Closing costs buyers usually pay
| Buyer closing cost | Typical fee |
|---|---|
| Loan origination fees | 1% of loan value |
| Mortgage application fee | $25–150 |
| Appraisal fee | $300–1,000 |
| Points on mortgage | Varies |
| Wire transfer fee | $10–50 |
| Flood certification fee | $15–25 |
| Private mortgage insurance application fee | Varies |
| Home inspection fees | $300–1,000 |
| Credit report | $30–50 |
| Survey fee | $85–600 |
| Prepaid homeowner's insurance, mortgage interest, and property taxes | Varies |
| Lender title insurance | Around 0.1% of home sale price |
| Mortgage transfer taxes | Varies |
The best ways to save on closing costs
When you buy or sell a home, there are a couple of ways to reduce your closing costs.
Negotiate closing cost responsibilities
Although most buyers and sellers follow local conventions when dividing closing costs responsibilities, who pays what is 100% negotiable.
When you're negotiating a purchase agreement, you can ask the other party to cover fees or taxes you'd typically pay. Or you can ask them to contribute a lump sum toward your overall closing cost burden.
Shop around for title companies and other services
Once you know what closing costs are your responsibility, you can shop around to find the best rates on title services, attorney fees, insurance premiums, and other fees.
However, when you're involved in a home sale or purchase, you have enough on your to-do list without worrying about comparison shopping. Between inspections, appraisals, and handling the logistics of your upcoming move, you probably don't have time to call ten different title companies to save $75 on closing fees!
Get discounted listing fees or a home buyer rebate
The best way to make your home sale or purchase more affordable is to find a realtor who charges low commission rates or offers home buyer rebates.
The real estate industry is more competitive than ever, and many agents have begun offering built-in savings to attract new customers.
For example, the top low commission real estate brokerages provide the service and support of a traditional realtor but charge a fraction of the typical price, saving you thousands when you sell.
And, if you're buying, you may qualify for a home buyer rebate that puts cash back in your pocket when you close on your new house!
Clever has helped thousands of home sellers and buyers save on commission — we can help you keep more money in your pocket too!
With Clever:
✅ Sellers pay pre-negotiated 1.5% listing fees
✅ Buyers earn cash back on eligible purchases
✅ You'll work with a full-service realtor from top brokers like RE/MAX and Century 21
Clever's service is 100% free, with zero obligation. You can interview as many agents as you like, or walk away at any time. Enter your zip code to find a top local agent today!
When are closing costs due?
Closing costs are due when the home changes hands. This happens during a process called settlement, which usually happens on the closing date specified on the purchase agreement.
At closing, buyers bring a lump sum of money — usually in the form of a cashier's check or certified check — to cover their down payment and closing costs.
The amount of money that the buyer needs to bring to close the sale is referred to as the "cash to close." This figure accounts for everything the buyer has to pay, including their closing costs and down payment, minus any credits from the seller and their earnest money deposit.
Prior to closing, the buyer's lender will specify their "cash to close;" buyers aren't responsible for calculating this amount themselves.
Sellers generally don't have to worry about bringing cash to cover their closing costs; any charges the seller has to pay usually come out of the proceeds generated from the sale. The exception is when the seller's closing costs and the amount they owe on their mortgage is more than what they sold their home for. In those situations, the seller would usually have to bring money to settlement to close the deal.
» MORE: Do closing costs include realtor fees?
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