Closing Costs: Homebuyer’s or Seller’s Responsibility?
When you buy or sell a home, agreeing on a purchase price is only the first step. For the ownership to officially transfer, both parties must complete a series of legal, financial, and administrative steps — known collectively as the closing process. Closing services come with fees, or closing costs, which can range from 2% to 6% of the home's purchase price, based on the loan type, location, taxes, and the services required.
But a common misconception among homebuyers is that either the buyer or the seller takes up these expenses. We beg to differ — both parties usually pay closing costs, but they pay different types of fees, and the final allocation is often negotiable. The purchase contract, local customs, state regulations, lender requirements, and current market conditions all influence who pays what.
Closing a Home Purchase Is a Two-Way Deal, Actually
There’s no single legal rule that narrows all closing costs down to only one party. Each side of the bargain has their own expenses to cover. And each expense is tied to the service used either by the buyer, the seller, or both.
Generally speaking:
- A homebuyer must usually cover mortgage costs, as well as some extra payments to obtain full ownership.
- A home seller, in turn, pays expenses of preparing, then transferring the property, and completing the sale.
However, in many transactions, negotiated concessions can take place, where one party agrees to cover some of the other party’s costs (e.g., a seller may want to move the deal faster by taking care of some legal expenses for the buyer).
This is why closing costs may vary a lot even for two equally priced and situated homes. This is also why closing costs deserve closer inspection. Let’s get a bit deeper into how all this works.
Buyer’s Closing Costs
For buyers, most closing costs are related directly to the mortgage and the loan risk assessment (i.e., proving to a lender that you have sufficient mortgage funds).
As for the major buyer-paid costs, they include:
- Loan origination fees
- Credit report fees
- Appraisals
- Home inspection (which is usually paid before closing)
- Title search costs
- Insurance policy for a lender’s title
- Property recording fees
- Prepaid property taxes
- Homeowner’s insurance premiums
- Mortgage insurance (when applicable)
- Initial escrow deposits
- Interest accrued before the first mortgage payment
Homebuyers must pay to
- verify the property's value
- establish legal ownership over it
- and protect the lender's financial interest (e.g., by showing sufficient fund reserves)
Some expenses, such as homeowners insurance or escrow funding, aren't fees in the traditional sense. They’re prepaid amounts that the borrower would owe regardless of closing costs.
Seller’s Closing Costs
Seller expenses are mostly tied to transferring ownership and meeting all existing financial obligations.
The common seller-paid costs include:
- Realty agent commissions (if relevant)
- Owner's title insurance policy (common in many US states)
- Transfer taxes (depending on state law)
- Attorney fees (where required)
- Recording or deed preparation fees
- Outstanding property taxes
- Mortgage payoff balance
- HOA transfer fees
- Agreed seller concessions
Unlike buyers, sellers don't have to pay lender-related fees (as they’re not obtaining any external financing). As a seller, your largest closing expense is the commission you owe to real estate professionals. Although, coming from the practice, buyers/sellers increasingly prefer to negotiate commission structures directly between each other, avoiding third parties.
The negotiations, in turn, can dictate new, unique closing cost aspects.
How Negotiations Can Steer Closing Costs
When it comes to a real estate transaction, closing costs are one of the most negotiable aspects.
For example, a buyer might offer the full asking price for a house, but request a seller credit, thus offsetting closing costs. Alternatively, a seller may decline to reduce the home's price but agree to contribute something toward the buyer's financing expenses to move the deal.
If real estate market conditions are in their favor, a seller readily accepts such requests. Also, things are different for a seller’s and buyer’s markets:
→ In a seller's market, the sales inventory (i.e., properties) is limited, and demand is high, so sellers are generally less willing to offer concessions. After all, they get to choose from multiple competing offers.
→ In a buyer's market, sellers tend to contribute more eagerly toward closing costs — it makes their property more attractive and easier to sell.
How Loan Programs Influence Closing Costs
Another factor for closing costs is different mortgage programs, which place different limits on seller contributions (to prevent them from artificially inflating property values).
For example:
- Conventional loans allow seller concessions, but the maximum amount depends on the buyer's down payment and occupancy type.
- FHA loans permit sellers to contribute up to 6% of the purchase price toward closing costs.
- VA loans also allow seller concessions (although separate rules distinguish ordinary closing costs from additional concessions).
- USDA loans have their own limits and eligibility requirements.
Can Closing Costs Be Rolled Into Mortgage?
This is a big common question — yes, sometimes you can use certain mortgage payments for closing costs. But you generally cannot simply add closing costs to the loan balance (the loan amount is based on the property's value and the lender's approved LTV ratio).
However, as a buyer, you can still finance some closing costs if you:
- Make a larger down payment (within your program’s limits).
- Request lender credits (for paying a slightly higher interest rate on your part).
- Negotiate seller concessions.
- Choose a loan program that permits you to finance certain upfront fees.
It’s easier (and much more common) to roll closing costs into the new loan when you’re refinancing a property and already have some equity on it.
How You Can Reduce Closing Costs as a Buyer
Although a majority of closing costs are unavoidable, you get several opportunities to lower them as a borrower:
- Compare Loan Estimates from several lenders
- Negotiate lender fees when possible
- Ask about lender credits
- Request seller concessions
- Shop independently for title and settlement services (if permitted)
And remember — even modest savings made on several fee categories can reduce your upfront cash requirements by thousands of dollars(!)
How LBC Mortgage Can Help You
Need assistance optimizing closing costs? LBC Mortgage will personalize your closing, handle negotiations for you, and schedule the closing strategically to reduce both prepaid interest and total costs.