In a typical home sale, the buyer pays closing costs tied to the mortgage and the seller pays costs tied to transferring ownership, with real estate agent commissions usually coming out of the seller’s proceeds. Buyers generally owe 2% to 5% of the purchase price in closing costs, so on a $400,000 home that works out to roughly $8,000 to $20,000 due at the closing table on top of the down payment.1My Home by Freddie Mac. 5 Tips to Help You Save on Closing Costs The exact split depends on the loan type, the terms written into the purchase agreement, and local custom.
What the Buyer Usually Pays
Most of a buyer’s closing costs relate to getting the mortgage in place. The lender charges an origination fee, usually 0.5% to 1% of the loan amount, to process and underwrite the loan.2My Home by Freddie Mac. What Are Closing Costs and How Much Will I Pay? On a $320,000 mortgage, that alone runs $1,600 to $3,200. A credit report fee, typically under $100, is charged separately.
The lender also requires an appraisal to confirm the home’s value supports the loan. Appraisals generally cost $300 to $600, though complex or larger properties can push the fee higher. A home inspection is not always required by the lender but usually runs $300 to $500 and covers the roof, HVAC, plumbing, and electrical systems.
Private Mortgage Insurance
If your down payment is under 20% on a conventional loan, you’ll pay for private mortgage insurance, which protects the lender if you stop making payments.3Consumer Financial Protection Bureau. What Is Private Mortgage Insurance? Annual PMI costs generally run between 0.58% and 1.86% of the loan balance, driven mostly by your credit score and down payment size.4Fannie Mae. What to Know About Private Mortgage Insurance Some borrowers pay an upfront PMI premium at closing, others pay monthly, and some do both.
Title Insurance and the Escrow Deposit
Lender’s title insurance is almost always a buyer expense. This one-time premium protects the lender’s financial interest if a title defect surfaces later. The cost is generally a small percentage of the loan amount and varies by state.
The lender also collects an initial escrow deposit at closing to fund an account that will pay future property taxes and homeowner’s insurance. Federal rules cap the cushion a lender can require at two months’ worth of escrow payments above what’s needed for upcoming bills.5Consumer Financial Protection Bureau. Regulation 1024.17 – Escrow Accounts In practice, the initial deposit usually covers two to four months of taxes and insurance combined.
What the Seller Usually Pays
Real Estate Agent Commissions
Agent commissions are typically the biggest single closing cost in a sale. Historically the total commission has run 5% to 6% of the sale price, split between the listing agent and the buyer’s agent. On a $400,000 home, that’s $20,000 to $24,000 deducted from the seller’s proceeds.
A 2024 settlement involving the National Association of Realtors changed how those commissions get structured. Buyers now sign written agreements with their own agents spelling out compensation, and listing agents can no longer advertise a set buyer-agent commission through the MLS. Many sellers still offer to cover the buyer’s agent fee to attract more offers, but the amount is now openly negotiated. Buyers should be ready for the possibility that they may need to pay some or all of their own agent’s fee out of pocket, which would land on their side of the closing statement.
Transfer Taxes, Deed Preparation, and Payoffs
Government transfer taxes (sometimes called documentary stamps or excise taxes) are imposed on the deed to record the change in ownership. These vary widely: some jurisdictions charge a flat amount per transaction, others a percentage of the sale price, and not every state imposes one at all. Where a transfer tax exists, local custom determines whether the buyer, seller, or both pay it.
Sellers are also generally responsible for preparing the new deed and any associated notary fees. Before the deed can transfer, the seller has to clear any existing liens, mortgages, or judgments recorded against the property, and those payoff amounts come directly out of the seller’s proceeds.
Owner’s Title Insurance
In many markets the seller buys an owner’s title insurance policy for the buyer. This one-time premium protects the new owner against title defects that existed before the purchase, such as forged signatures in the chain of title, undisclosed heirs, or recording errors. The cost depends on the sale price and the state. In some areas, local custom shifts this expense to the buyer.
A Note on Foreign Sellers
If the seller is not a U.S. citizen or resident, the buyer is generally required to withhold 15% of the sale price under the Foreign Investment in Real Property Tax Act and send it to the IRS.6Internal Revenue Service. FIRPTA Withholding The withholding comes out of the seller’s proceeds rather than the buyer’s pocket, but it changes how much cash the seller nets. The seller can file a U.S. tax return afterward to claim a refund if the actual tax owed is less than the amount withheld.
How the Split Can Shift: Seller Concessions
The purchase agreement can move some closing costs from one side to the other. A seller concession is an agreement where the seller pays a portion of the buyer’s closing costs, reducing the cash the buyer needs at the table. Concessions get written into the sales contract as either a flat dollar amount or a percentage of the sale price.
Lenders cap how much a seller can contribute, and the cap depends on the loan type and the buyer’s down payment. For conventional loans backed by Fannie Mae, the limits are tied to loan-to-value:
- Down payment under 10% (LTV above 90%): seller can contribute up to 3% of the sale price.
- Down payment of 10% to 25% (LTV of 75.01% to 90%): up to 6%.
- Down payment above 25% (LTV of 75% or less): up to 9%.
Any concession that exceeds these limits gets treated as a reduction to the sale price, which can lower the appraised value used for underwriting and force the loan terms to be recalculated.7Fannie Mae. Interested Party Contributions (IPCs)
FHA loans allow seller concessions of up to 6% of the sale price, regardless of the down payment. VA loans work differently: there is no limit on how much a seller can contribute toward the buyer’s actual closing costs, but seller concessions for other items (such as paying off the buyer’s debts or covering the VA funding fee) are capped at 4% of the home’s reasonable value.8U.S. Department of Veterans Affairs. VA Funding Fee and Loan Closing Costs
How Local Custom Changes the Default
Local tradition drives a lot of the who-pays-what question. In some regions the seller customarily pays for the owner’s title insurance policy; in others the buyer does. Escrow fees, which cover the neutral third party that holds funds during the transaction, are split between buyer and seller in some markets and assigned entirely to one party in others. A property survey, if required or requested, might run $400 to $1,000, and local norm decides whether the buyer or seller covers it.
These customs function as defaults in local real estate contracts, but they aren’t fixed. Everything is negotiable in the purchase agreement. Recording fees and municipal lien search charges also vary by county. Reviewing the standard contract forms used in your area and asking your agent which costs are typically assigned to each side locally will give you a clearer picture of what to expect before you get to the closing table.
Verifying the Split Before You Close
Federal law requires your lender to send you a Closing Disclosure at least three business days before you close on the loan.9Consumer Financial Protection Bureau. What Should I Do if I Do Not Get a Closing Disclosure Three Days Before My Mortgage Closing? The document lists every closing cost, who pays it, and the final loan terms. Compare it line by line against the Loan Estimate you received when you applied.
Federal rules limit how much certain fees can increase between the Loan Estimate and the Closing Disclosure:10Consumer Financial Protection Bureau. Regulation 1026.19 – Certain Mortgage and Variable-Rate Transactions
- Zero tolerance. Fees paid to the lender, fees paid to a mortgage broker, transfer taxes, and fees for services where the lender chose the provider cannot increase at all from the original estimate.
- 10% tolerance. Recording fees and fees for third-party services the lender allowed you to shop for can increase, but only by up to 10% in the aggregate.
- No cap. Prepaid interest, property insurance premiums, escrow deposits, and fees for services you chose yourself outside the lender’s list can change without a fixed limit, though the lender must still base estimates on the best information available at the time.
If a zero-tolerance or 10%-tolerance fee jumps above the allowed amount, the lender has to refund the excess to you at closing or within 60 days afterward. Catching a misallocated fee or a cost the contract said the other side would pay is easier three days before closing than at the signing table, so the review is worth doing carefully.