Calculating closing costs

Calculating closing costs …..As you consider buying or selling a home, you may be curious about how much money you’ll be expected to bring to the closing table. Maybe you’re wondering — how much are closing costs? And what do closing costs consist of, anyway?

Here are some insights you can use to better understand typical closing costs and instructions on how to calculate your estimated closing costs as a buyer or a seller.

  • What are closing costs?
  • Common closing costs for buyers
  • Common closing costs for sellers
  • Typical amount of home closing costs
  • Does the seller assist with closing costs for the buyer?
  • Estimated closing cost calculator

What are closing costs?

Simply put, closing costs consist of any payments that a buyer or seller is responsible for at the time of the property closing. Most closing costs are owed to sale-related service providers, such as:

  • Mortgage lenders or banks
  • Title companies and local county records
  • Real estate agents
  • Homeowner’s insurance and home warranty companies

What are the most common closing costs for buyers?

Typical closing costs associated with buyers cover a variety of home transaction expenses, including:

  • Lender fees. This payment can include loan origination fees, mortgage insurance premiums, prepaid interest on the buyer’s loan, discount points and credit checks.
  • Home inspection and appraisal fees. The home must be in the expected condition and the value must be appraised at the sale price or higher, in order for the loan to be approved.
  • Title work. There’s more than just the title. Buyers will also need title insurance and a title exam that searches the property’s title history for claims or liens.
  • Taxes. Oftentimes lenders request any taxes due within 60 days of the home purchase to be paid at closing.
  • Homeowners’ insurance. Payment for the homeowner’s first annual premium is typically required.

What are the most common closing costs for sellers?

Sellers also have some specific home sale expenses, which are typically deducted from the seller’s sale proceeds at closing:

  • The agent’s commission. In most cases, sellers pay a commission on the home sale to their listing agent’s broker. That broker then pays both the seller’s and the homebuyer’s agent. Each seller will agree to a commission rate with their agent prior to signing a contract to work together.
  • Paying off the home loan. Because of interest, the seller’s cost to pay off the loan will be slightly higher than the amount owed on the loan at closing; sellers pay this difference at closing.
  • Recording fees. These are the required charges from the seller’s local government to file documents from the transaction with the government.
  • Taxes.The government also imposes a tax on the transfer of the property, which is calculated based on the sale price. In certain home sales, the seller might have to pay a capital gains tax if their home meets certain criteria.
  • Title insurance. While buyers typically pay for title insurance on a Minnesota transaction, Wisconsin buyers pay for the insurance for their lender and sellers pay for the owner’s title insurance premium.
  • Liens and outstanding fees. If the property has any outstanding liens, unpaid property taxes or the seller has failed to pay HOA dues, a seller may be asked to pay those before the home is able to close.
  • Home inspection (or other) repairs. If an issue was uncovered during the buyer’s inspection and the seller agreed to pay for the repair, this amount is sometimes be paid at closing.

In some cases, a seller may also agree to pay some of the buyer’s closing costs. We’ll get to how those negotiations work in just a bit.

As you can see, there are various fees and services paid for at a home closing, both by the homebuyer and the seller.

But overall, closing costs aren’t a surprise. Your REALTOR® and lender will walk you through what you’ll owe and why. And while closing costs on each home sale will vary, nationwide estimates show a clear range of what most buyers and sellers owe:

These number ranges provide a guide to understand how much typical home closing costs are. However, it’s important to understand that buyers don’t always have to pay their full closing costs. In some cases, a homebuyer may negotiate for the seller to cover some of those costs during the home sale.

Does the seller ever pay the buyer’s portion of closing costs?

Every homebuyer and seller has unique desires during the home transaction, making every home sale different. Therefore, it’s not uncommon for closing costs to be a source of negotiations between the seller and buyer.

In 2018, the National Association of Realtors collected data to form a Profile of Buyers and Sellers. According to this information, 46 percent of sellers in the Midwest provided some kind of incentive to buyers last year.

Offering an incentive is part of the negotiation process, and the two most common incentives offered by sellers in the Midwest region were:

  • Home warranty policy (21 percent)
  • Assistance with closing costs (14 percent)

When it comes to providing monetary assistance for closing costs, sellers can agree to give a percentage of the total amount or a flat dollar contribution. Whatever agreement the buyer and seller settle on, the details must be clearly stated within the accepted purchase agreement of the home.

There is one area, however, where sellers tend to pay at closing — and that’s the agent commissions. In 77 percent of home transactions across the country, the seller pays most of the agents’ commissions. Typically, the seller pays their listing agent’s broker an agreed-upon percentage of the price the home sells for. Then, the broker pays out the seller’s and buyer’s agents from dollars within that commission.

Does the seller have to pay the buyer’s closing costs?

Simply put, no. Sellers do not have to pay the buyer’s closing costs or any portion of them. As a matter of fact, less than half of sellers last year chose to pay any kind of incentive at closing.

So while it’s common for sellers to contribute to closing costs as a way to move the home sale forward, it’s certainly not expected.

However, if a seller is having a hard time selling their home quickly or isn’t receiving offers for what they feel their home is worth, they may be able to incentivize a buyer by reducing their financial burden at closing.

While 44 percent of all sellers last year provided buyer incentives at closing, that number increased when properties didn’t sell quickly. Sellers whose homes were on the market for more than 17 weeks provided incentives 52 percent of the time. Providing an incentive, like paying closing costs, might just be enough for an on-the-fence buyer to go all-in on an offer.

How can I calculate my closing costs?

Every home sale is different, as varying service providers are paid out and negotiations and agreements are finalized. So while closing payments have a typical range for both buyers and sellers, closing costs on a home could vary by several thousand dollars depending on the price and terms of the real estate transaction.

To estimate what your closing costs are as buyer or seller, try out Edina Realty Title’s closing costs calculator.

It only takes 30 seconds to generate your potential costs with this tool — and the calculator automatically breaks your costs into separate categories so you can see what your closing costs are really paying for.

Keep in mind that the calculator will not include the costs if you are a seller who has agreed to pay:

  • All or a portion of the buyer’s closing costs
  • Other buyer incentives, such as a home warranty policy
  • Repairs that the buyer will take on after closing
  • Other costs related to buyer negotiations

Confused, or need extra guidance?

There’s a lot to discuss and plan for when it comes to closing costs, so be sure to work with an agent who can support you.

Whether you want help prepping your home for sale or assistance with budgeting for your first-ever home purchase, reach out today to Edina Realty or one of our agents for expert answers and advice.