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Before you make it to closing day for your new home, consider setting aside an extra check for the associated closing costs. That’s right. In addition to your down payment, earnest money, and monthly mortgage payment, another bulk sum is needed before you can take ownership of your new home.

According to ClosingCorp, the average closing costs required to buy a home in the US was $3,860 (without transfer taxes) in 2021. The associated real estate costs can get confusing—especially if you’re a first-time home buyer. In this guide, we’ll break down closing costs and, more importantly, who pays closing costs.

In this article:

What are closing costs?

How much are closing costs?

Who pays closing costs—buyer or seller?

How do you reduce closing costs?

Closing Costs FAQ

What are closing costs?

Closing costs are the bundle of charges a buyer incurs while obtaining a mortgage and are due at the closing of your loan. (Hence the name closing costs!) The fees rolled into closing costs are paid out to the entities that helped you along the homebuying process until closing. Some costs come from the lender, some from the government, and others depend on the specific contract situation.

The total due can include costs associated with the following:

  • Application fees
  • Mortgage loan origination fees
  • Appraisal fees
  • Title search and insurance fees
  • Lawyer fees for settlement and closing
  • Property taxes
  • Homeowner’s Insurance

At least three days before closing day, your lender will provide a Closing Disclosure document that outlines each closing cost and fee associated with the transaction.

How much are closing costs?

The total closing costs due will vary depending on the type of loan you acquire and where you live. Closing costs are typically between 3%-6% of the total loan amount. 

Who pays closing costs—buyer or seller?

The most crucial question every buyer (and seller!) asks is, “Who pays closing costs?” The answer isn’t simple, as it can vary between transactions. Both buyers and sellers pay closing costs. However, buyers typically pay most of them.

In some instances, buyers can negotiate with sellers to contribute towards closing costs for resell homes (this may not always be the case for new construction) . New home builders even offer specific incentives that provide credits towards closing costs without any negotiation required! You may need to use one of the builder’s preferred lenders to take advantage of the incentive.

When it comes to who pays closing costs. Sellers are limited in the amount they can contribute towards closing costs depending on the buyer’s loan type. A seller’s contribution can only reach a certain percentage of the mortgage’s value, and it’s never over 9%.

How do you reduce closing costs?

Reducing your closing costs will require negotiation with different parties. For example, you can try negotiating with your mortgage loan lender to reduce some of the fees associated with the mortgage process. You may also be able to negotiate closing costs into your mortgage payment. However, this will cause you to pay more in the long run on the interest incurred.

In some situations, like a buyer’s market for a resell home, the easiest way to reduce closing costs is to negotiate who pays closing costs for your real estate transaction. Specifically, you can negotiate with the seller to help cover some closing costs within your contract. However, buyers must still contribute some closing costs due to the seller’s contribution limits. This depends on your situation and might not be the case for new construction homes.

Closing Costs FAQ

Who pays most of the closing costs?

Traditionally, the buyer is the one who pays closing costs. In a situation where another party contributes, the buyer in a real estate transaction typically pays most of the closing costs, as sellers have limits to the amount they can offer.

How much are closing costs in Georgia?

The average closing costs in Georgia are $3,762 with transfer taxes and $2,863 without taxes.

How much are closing costs in Alabama?

The average closing costs in Alabama are $2,986 with transfer taxes and $2,623 without taxes.

How much are closing costs in Florida?

The average closing costs in Florida are $8,554 with transfer taxes and $4,498 without taxes.

Closing costs are just another expense to budget for when purchasing a home. Who pays closing costs can be negotiated, but the buyer will always pay most of them, especially if it’s a new construction home. If you’re worried about who pays closing costs in your new home transaction, budget for the higher end of 6% of your loan balance, and you may catch a break during negotiations!

If you’re searching for a new construction home in Georgia, Alabama, or Florida, you don’t want to miss our featured homes—especially those with limited-time closing costs incentives! You may be able to save on closing costs for your new construction home with Brock Built, and we’d be happy to help make your dream come true. Check out our exclusive incentive offers to catch a deal!