DISCLAIMER: This blog post should not be construed as legal advice
Whether you're buying or selling a home, closing costs are an inevitable part of the process. These fees can sometimes come as a surprise, but understanding them can help both buyers and sellers navigate the closing process with confidence. At Curington Law, LLC, we specialize in guiding clients through real estate transactions, ensuring transparency and helping you anticipate all costs involved. Below, we’ll break down the typical closing costs for both buyers and sellers in a residential real estate transaction.
Closing Costs for Buyers
Buying a home involves several costs beyond the purchase price. Here are the most common closing costs a buyer should expect:
Loan Origination Fees
If you're obtaining a mortgage, one of the first expenses to consider is the loan origination fee. This fee compensates the lender for processing your loan application. It typically ranges between 0.5% to 1% of the loan amount.
Appraisal Fee
Before approving your loan, your lender will require an appraisal to ensure the home's value matches the loan amount. The appraisal fee usually ranges from $300 to $500, depending on the property's size and location.
Home Inspection Fee
While not mandatory, a home inspection is highly recommended to assess the property's condition. The cost typically ranges from $300 to $600, but it can save buyers from unexpected expenses down the road.
Title Search and Title Insurance
Title insurance protects both the lender and the buyer from claims against the property. Title search fees cover the cost of verifying that the seller owns the property free of liens or disputes. This can range from $300 to $800, depending on the property's complexity.
Escrow Fees
Escrow companies manage the exchange of money and documents during the sale. Their fees vary but usually range from $500 to $2,000. Escrow agents ensure both parties comply with the terms of the sale, offering peace of mind during the closing process.
Property Taxes
Depending on when you close, buyers may need to reimburse the seller for any property taxes they've prepaid. This proration is calculated based on the closing date and can vary significantly depending on the location and time of year.
Homeowners Insurance
Lenders require buyers to secure homeowners insurance before closing. Premiums vary based on the property's value and location but are typically $1,000 to $2,000 annually. The first year’s premium is often paid at closing.
Private Mortgage Insurance (PMI)
If your down payment is less than 20% of the home's value, lenders may require PMI. This insurance protects the lender in case of default. The initial premium is often included in closing costs, though it may be part of your monthly mortgage payment going forward.
Attorney Fees
In many states, including Illinois, it’s customary for the buyer to hire a real estate attorney to oversee the transaction. The attorney reviews the contract, conducts a title search, and facilitates the closing. Attorney fees can range from $500 to $1,500.
Recording Fees
In some cases, the buyer must pay a fee to record the deed with the local government, ensuring that ownership of the property has officially transferred to the buyer. This fee is generally between $50 and $200.
Closing Costs for Sellers
For sellers, closing costs primarily involve paying off existing obligations tied to the property and fees for facilitating the transaction. Below are the typical costs:
Real Estate Agent Commissions
The largest expense for sellers is usually the commission paid to real estate agents. Typically, sellers are responsible for paying both the buyer’s and seller’s agents, which usually amounts to 5% to 6% of the home's sale price. However, after August 17, 2024, a National Association of Realtors (NAR) lawsuit settlement as shifted this standard. The seller has more flexibility on whether to pay both the buyer agent and seller agent. The seller can now pay for only the seller agent's commission and the buyer pays for the buyer agent's commission. This, of course, can be negotiated between the parties.
Title Insurance
In some areas, the seller is responsible for paying for the owner's title insurance policy to protect the buyer from future title disputes. This cost typically ranges from $500 to $1,500, depending on the home's sale price.
Outstanding Property Taxes and HOA Fees
Sellers must settle any outstanding property taxes, utility bills, and homeowner association (HOA) dues up to the closing date. These costs are prorated to reflect the period in which the seller occupied the property during the current tax year.
Attorney Fees
Like buyers, sellers may also need a real estate attorney to ensure the legality of the transaction and review closing documents. Attorney fees for sellers are typically between $500 and $1,500.
Transfer Taxes
Some local governments impose a transfer tax on real estate transactions. This tax is usually a percentage of the sale price and varies by location. It could range from a few hundred dollars to several thousand.
Mortgage Payoff
If the seller still owes money on their mortgage, the remaining balance must be paid off at closing. The payoff amount includes the principal balance, interest, and any fees owed to the lender.
Home Warranty (Optional)
To make the deal more attractive to buyers, sellers may offer to pay for a home warranty. This warranty covers repairs to major systems and appliances for a year. Home warranties typically cost between $300 and $600.
Who Pays What?
While there are general guidelines for who covers each cost, it’s important to remember that most closing costs are negotiable. For example, a seller might agree to cover part of the buyer’s closing costs as part of the negotiation process, particularly if the local market favors buyers. Both buyers and sellers should carefully review the Closing Disclosure or Settlement Statement prior to the closing to ensure they understand all costs they are responsible for.
Final Thoughts
Navigating closing costs in a real estate transaction can seem overwhelming, but with proper planning and guidance, you can avoid surprises at the closing table. At Curington Law, LLC, we’re here to make sure your residential real estate transaction goes smoothly, from drafting and reviewing contracts to handling every detail at closing.
If you're in the process of buying or selling a home, contact us today to schedule a consultation. We’re committed to ensuring your transaction is seamless and protecting your interests at every step.
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