Who Pays Closing Costs on a Home Mortgage? Be Prepared to Negotiate

Couple paying mortgage closing costs with agent holding toy home

Finding the home of your dreams is hard enough. Funding the home of your dreams can be just as a difficult. Let this be your roadmap to who pays the closing costs for your new mortgage.

Seller specific closing costs

Who pays realtor fees? Great question! The real estate agents’ (yes, plural — we’re talking about the listing agent and buying agent) commission is almost always the largest fee due at closing. So it’s important to know how much this expense can cost. The good news is: the sellers are responsible for covering both agents’ commission. So you can focus on saving money for the home closing costs listed below.

Buyer specific closing costs

More often you’ll be on the hook for several thousand dollars in closing costs of one form or another. Expect to pay these fees every time:

Title search or exam fees

To check and file the necessary paperwork with the government.

Title insurance

To ensure the lender doesn’t get stuck paying for unfiled paperwork to bring the property in compliance with state, federal, and local laws.

Property tax

Because Uncle Sam gets his cut regardless of where you live. (But you’ll pay more if you live in a high-rent area.)

Flood determination

You’ll pay if you live in an area that’s prone to floodings, such as parts of Florida and Louisiana.

Credit report fee

Because your lender has a right to understand your credit score and history before lending you money.

Attorney fees

Because some states mandate an attorney be present when signing closing documents, and attorneys aren’t free.

Prepaid interest

Because if you have a mortgage, you need to pay interest. What you’ll pay upfront depends on the day of the month in which you close and move in. The later in the month, the less interest you’ll pay upfront.

Appraisal fees

These cannot be avoided. And, you can no longer shop around for appraisal companies as a result of the new Appraiser Independence Requirements. To pay for the appraisal fees, over 90% of lenders require their borrowers make a one-time, upfront check or online payment.

Loan program specific fees

Some fees depend on the product you’re using. For example, applicants with bad credit may need a mortgage backed by the Federal Housing Authority (FHA), but that product comes with an upfront mortgage insurance commitment equal to roughly 2.25% of the financed amount. It also includes a monthly fee. Similarly, active duty military and veterans who qualify for a VA loan may have to pay a VA funding fee. This may be up to 3.3% of the total loan amount.

Don’t get too frightened by these fees. Wounded warriors with a disability rating may be eligible to waive the VA funding fee. And while the FHA payments are non-negotiable, your lender may have options for reducing your out-of-pocket commitment to insurance premiums.

Non-negotiable fees

There’s no such thing as a zero-fee mortgage. Any lender that tries to convince you otherwise is either lying or distorting the process of rolling the cash value of closing costs into the overall balance of the mortgage you’ll be paying monthly. Be careful if you choose to go this route: $1,000 compounded monthly at today’s 4.25% average rate for a 30-year mortgage rises to $3,570.65 over the life of the loan.

Negotiable closing costs

Other fees are either optional or unnecessary. Or, there’s wide discretion in how they get levied. Be vigilant in negotiating who pays these closing costs:

Origination fees

Because they’re entirely at the discretion of your lender, and designed to create a bit of profit padding in the event the total loan amount is too low to make writing the loan worthwhile.

Home inspection fees

These sometimes get added in for refinancings but only apply to purchases. If you’re buying a pre-existing home, the buyer may choose not to pay for a home inspection and the seller may choose not to offer one.

Escrow

Escrow is also optional if you’re getting a conventional mortgage. Just be careful. Choosing not to pay taxes and insurance monthly doesn’t remove the obligation of paying those fees. You’ll just have to pay them directly at the appropriate time of year.

What's included in escrow fees? Let us help you understand how closing costs differ from escrow.

Application fees

Just another way lenders maneuver to get a little extra cash from every deal. And they’re probably making plenty of profit already.

Seller credits

Don’t forget you can negotiate with the seller, too. If the inspection acknowledges repairs are needed, chances are the seller would rather work through a deal with you than make the repair before closing. As a rule of thumb, remember that the less a seller has to spend on the property, the more likely he or she will assist with your closing.

Whether repairs are needed or not, negotiating an extra one to two percent toward closing costs can make a bigger impact than a $5,000 reduction in purchase price (which in the grand scheme of things will only save you a few dollars a month on your mortgage). So don’t give in to a lower listing price until you attempt a closing cost negotiation first. Your chances for success increase if you’re paying the full home asking price.

Not buying a home? Let us explain closing costs on a mortgage refinance.

Weird fees you might have to pay if …

Sometimes you’ll pay fees for largely inexplicable reasons. Take real estate transfer taxes, which are usually (but not always) paid when a property changes hands and a new title issued. If you live in 37 states or the District of Columbia, you may be on the hook for a transfer tax.

What you’ll pay varies on where you live. In Colorado, fees tend to max out under $200. But in Washington state, you could pay 1.28% of the sale price of your home plus local taxes. So, if you live in Seattle and sell a primary residence for $500,000, over $6,000 of your expected proceeds could find their way to government coffers instead. Sound maddening? You bet it is.

Remember the bottom line

Fees are inevitable

You’ll pay them wherever you live and whatever property you’re buying or selling. So, take time to enjoy the process! Burdening yourself with the stress of nitpicking every fee on your Closing Disclosure (the lender must supply this to you) can suck the joy out of home buying.

Pick your battles

In most cases, the seller is so overwhelmed by real estate agent fees and the down payment on their next home, there’s little left over for you. So, save as much as you can. Then focus on closing your loan and getting the keys. Because as soon as you go through that front door, who paid which closing costs won’t matter as much as closing the deal to get your dream home.