What’s Included in Closing Costs

When buying or selling a home, it’s easy to focus on the sale price and forget about the additional expenses that come with finalizing the deal. These are known as closing costs, a combination of fees that can impact your budget more than you expect.

Whether you’re a first-time homebuyer or a seasoned seller, understanding what’s included in closing costs helps you prepare financially, avoid surprises, and make informed decisions throughout the transaction.

At Justin Johnson Realty, we have provided answers from our experts on what you need to know about closing costs.

What are Closing Costs in Real Estate?

Closing costs are charges incurred by both the buyer and seller at the final step of selling a property, specifically when ownership transfers from the seller to the buyer. These are separate from the down payment or sale price. These include loan origination, title insurance, appraisal, property inspections, escrow services, recording fees, transfer taxes, prepaid insurance and taxes, and more.

What Fees and Expenses Are Part of Closing Costs?

Less than 20% on conventional loans, protecting the lender in the event. Knowing what to expect can help you budget more accurately. Below is a breakdown of common fees and who typically pays them.

Home Appraisal Fees

This is a fee paid by the buyer for a licensed professional to assess the property’s fair market value. This is required by lenders to ensure the collateral justifies the loan amount.

Title Search Fee

A charge to review public records and verify the seller’s clear ownership, checking for liens or issues. Traditionally paid by the buyer, though sellers may cover it depending on local custom.

Transfer Fee

This is a government tax on transferring the title, based on the sale price or location. The tax is paid by either party, depending on jurisdiction and negotiations.

Recording Fee

This is a fee paid by the buyer to the county or state to formally record deed and mortgage documents as public record.

Mortgage Lender Fees

This expense covers the loan origination fee, underwriting, application, and credit report costs. These are administrative costs paid by the buyer to process the mortgage.

Prepaid Interest

This is paid by the buyer upfront to the lender. It is the interest accrued from the closing date until the first mortgage payment.

Private Mortgage Insurance (PMI)

Knowing what to expect can help you budget more accurately. Below is a breakdown of common fees and who typically pays them.

Discount Points

These are optional upfront charges, typically amounting to 1% of the loan amount, paid to reduce the interest rate over the life of the loan. The buyer usually pays this.

Property Taxes

The buyer pays a prorated tax for the period up to closing and an escrow deposit for the upcoming period. Meanwhile, the seller pays up to the closing date.

Homeowners Insurance

The first year’s insurance premium is often paid at closing, ensuring coverage starts upon ownership transfer. The homeowner’s insurance is paid by the buyer.

Land Survey Fee

This is paid by the buyer. Also referred to as a property survey fee, it is the cost to confirm property boundaries, detect encroachments, and validate legal descriptions.

Home Inspection

If the buyer prefers, they can have the property’s condition evaluated to help identify any issues.

Real Estate Agent Commissions

Real estate agent commissions amount to around 5 to 6% of the sale price. The seller pays this, but the buyer may negotiate during talks.

Transfer Taxes

This is the tax on property transfer. Although this is often paid by the seller, it can be shared or reimbursed depending on local customs and negotiable terms.

Legal or Attorney Fees

These are the charges paid by either party, depending on their level of involvement, for having attorneys review contracts, prepare closing documents, or represent them in negotiations.

Outstanding Mortgage Balance

This is paid by the seller. It is any remaining mortgage payoff or liens that must be cleared at closing.

Conveyance Fees

These are administrative charges from brokers or attorneys for title transfer paperwork and closing coordination. These are typically paid by the seller.

Understanding specific fees involved with the transaction and any relevant closing documents is important to ensure you haven’t missed anything. Consulting a qualified real estate agency like Justin Johnson Realty can help you, either as a buyer or seller, identify these costs, allowing you to budget appropriately for them.

What is the Most Seller Can Pay in Closing Costs?

The maximum amount a seller can contribute to a buyer’s closing costs ranges anywhere from 3% to 9% of the sales price, depending on the type of loan being used and the size of the down payment. These contributions, often referred to as seller concessions, help reduce the buyer’s upfront expenses but must stay within limits set by loan guidelines.

Here’s a breakdown by mortgage loan type:

Conventional Loans

Up to 3% if the buyer puts down less than 10%
Up to 6% if the buyer puts down 10-25%
Up to 9% if the buyer puts down more than 25%
Investment properties are capped at 2%.

Conventional Loans

Sellers can contribute up to 6% of the lesser between the home’s sale price and appraised value. This can be used toward closing costs, prepaid items, or discount points.

VA Loans

Sellers can pay all allowable closing costs, plus up to 4% of the loan amount in additional concessions, like paying off a buyer’s debt or covering the VA funding fee.

USDA Loans

Seller contributions are capped at 6% of the loan amount.
These limits apply only to closing costs, not the home price, and cannot exceed the buyer’s actual closing expenses. All contributions must be written into the purchase agreement and agreed upon during negotiations.

What is the Biggest Part of Closing Costs?

The largest portion of closing costs varies depending on whether you are the buyer or the seller. For buyers, lender-related fees that cover loan processing, underwriting, and credit checks typically make up the largest expense, usually ranging from 0.5 to 1.5 percent of the loan amount. Buyers may also pay prepaid property taxes and homeowners’ insurance, which are placed in escrow.

For sellers, the largest closing cost is usually the real estate agent’s commission, which is often 5 to 6 percent of the home’s sale price. This fee is typically split between the listing agent and the buyer’s agent. Although sellers pay this commission, it is often built into the home’s listing price during negotiations.

Close with Confidence with Justin Johnson Realty.

At Justin Johnson Realty, we make sure no detail is overlooked, including your closing costs. Whether you’re buying your dream home or preparing to sell, our experienced team is here to guide you through the entire process. From breaking down costs to negotiating concessions, we’ll help you plan with clarity and confidence. Start by reaching out to us, and let’s make your move a success.