What’s Included in Closing Costs? A Breakdown for Buyers & Sellers

Buying your first home or selling a property comes with more than just the sale price. Closing costs are a key part of the process. These fees and expenses are necessary to finalize the transaction, and knowing what's included helps you avoid surprises and budget wisely.

Let's take a closer look at what both buyers and sellers can expect to pay at closing.

What Are Closing Costs?

Closing costs are the collection of fees and payments due at the end of a real estate transaction. They typically total between 2% to 5% of the home’s purchase price and are paid at the time of signing.

Closing Costs for Buyers

Here’s a breakdown of typical closing costs for homebuyers:

1. Lender Fees

These are the costs associated with processing your loan application:

• Loan Origination Fee: Charged by the lender for evaluating and preparing your mortgage. It typically ranges from 0.5% to 1% of the loan amount.
  
  

• Underwriting Fee: Covers the lender’s process of assessing your risk level and verifying documentation.
  
  

• Application Fee: Some lenders charge this upfront to cover the administrative work of initiating your loan.
  
  

• Credit Report Fee: Covers the cost of pulling your credit report to evaluate your financial reliability.
  
  

2. Escrow Fees

An escrow company acts as a neutral third party to manage funds, documents, and the timeline of the transaction.

• These fees are shared by both buyer and seller and ensure all money and paperwork are handled securely and correctly before the property officially changes hands.
  
  

3. Title Insurance

Title insurance protects against issues related to the legal ownership of the home:

• Lender’s Title Insurance: Required by most lenders to protect their interest in the property.
  
  

• Owner’s Title Insurance: Optional but recommended; it protects the buyer from future claims against the property such as unknown liens or disputes over ownership.
  
  

4. Property Taxes & Prepaid Items

These are upfront payments for future homeownership expenses:

• Property Taxes: You may need to reimburse the seller for taxes they’ve already paid for the time you’ll own the home.
  
  

• Homeowners Insurance: Often, your lender will require you to prepay the first year of coverage.
  
  

• Interest: If your loan closes mid-month, you may need to prepay interest from the closing date through the end of the month.
  
  

5. Recording & Notary Fees

Local government agencies charge these fees to make your ownership official:

• Recording Fee: Paid to the county to legally record your deed and mortgage documents.
  
  

• Notary Fee: Covers the cost of a licensed notary verifying your identity and signature on critical documents.
  
  

Closing Costs for Sellers

Sellers also incur costs at closing. Here's what’s typically included:

1. Agent Commissions

This is often the largest single cost for sellers:

• Usually 5% to 6% of the final sale price, split between the buyer’s agent and the seller’s agent.
  
  

• These commissions are agreed upon in your listing agreement and are paid out of the seller’s proceeds at closing.
  
  

2. Escrow & Title Fees

Just like buyers, sellers pay a share of the costs for escrow services and title handling:

• Escrow Fees: Cover the management of transaction funds, timelines, and legal documents.
  
  

• Title Fees: Often include document prep and handling the official title transfer.
  
  

3. Transfer Taxes

Local governments charge this tax whenever a property changes ownership:

• City/County Transfer Tax: Varies by location and is calculated based on the sale price.
  
  

• In some markets, the seller pays 100% of this fee, while in others it's negotiable.
  
  

4. Outstanding Balances

Before the sale closes, sellers must pay off any remaining property-related debts:

• Mortgage Payoff: Any outstanding loan balance must be paid in full.
  
  

• Property Taxes: Any unpaid taxes must be settled.
  
  

• HOA Dues or Special Assessments: If applicable, these must be cleared to transfer ownership cleanly.
  
  

• Repairs or Credits: Any agreed-upon repairs or buyer credits are deducted from the seller’s proceeds.
  
  

Closing costs are an essential part of any real estate transaction. By understanding what’s involved—both as a buyer and a seller—you’ll be better equipped to prepare financially and avoid last-minute stress. If you're planning to buy or sell, having a knowledgeable agent and lender walk you through your estimated costs will help ensure a smooth and transparent process.

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If you're looking to achieve your real estate goals in the Bay Area and out of state, feel free to reach out to our team of real estate experts at (650) 250-3050 or www.ZenCoastHomes.com/connect.