Updated: Jun 29, 2021
Most Buyers and Sellers have no idea what it will cost to buy or sell a property. Of course, it’s different for both parties.
Buyers can usually expect to pay at least 4-5% in closing costs for a financed property and about 2% for a cash purchase. This is on top of their down payment.
There are a few factors that come into play such as the type of loan you are getting, the taxes, the HOA amount, the time of year, how many points your Lender is charging you (if any).
So for a typical FHA, 3.5% down you should expect to be paying about 7.5%-8% of the purchase price in total down payment and closing costs.
For instance, a $200,000 home will cost you about $16,000 to buy.
It is possible to offset this by asking for concessions or money towards your closing costs from the Seller. This can be anywhere from 3-6% of the purchase price.
Keep in mind this is not always a guarantee and it also depends on the type of financing you are using.
FHA will allow up to 6% while Conventional is a little more complicated. If your down payment for Conventional financing is less than 10%, the maximum seller contribution is 3%. If your down payment is 10-25%, the seller can contribute up to 6% of the purchase price, and for down payments greater than 25%, the maximum seller concession is 9%.
Also, if there are any other offers on the property then asking for Seller concessions will make your offer look weak when compared to the others. In the eyes of the Seller, it can also be a sign that you are barely able to afford to purchase the property. So make sure to factor those in before asking for concessions.
Let’s say the Seller wants the full asking price? One way this can be done is to add 3-6% to the offer amount. This way the Seller is not taking a loss. Of course, you could lose some or all of the Seller concessions if the appraisal comes back lower than expected. So be prepared for this.
So what exactly are the 4-5% closing costs for a Buyer, you ask? Doc stamps on the new note (mortgage), intangible tax on the new note, pro-rated HOA fees, escrow for property taxes, escrow for HOA and homeowners insurance, loan origination fee from the Lender, credit report fee from Lender, mortgage insurance premium (if applicable), interest rate buy down points (if any), Lender title insurance, survey and the Title Company settlement fee for facilitating the closing.
Don’t forget the out of pocket expenses, such as the initial deposit, the inspection (optional), and your appraisal. A typical deposit is between $1,000-$3,000. For cash it is common to put 10% of the purchase price as the down payment. Your inspection will run you anywhere from $250-$400 depending on the size of the property. The appraisal will cost roughly $500.
Keep in mind your deposit will be deducted at closing from your total amount owed and of course, you will get the escrow money back once the loan is paid off;)
For Sellers, you can expect to pay about 8% of the purchase price to sell the property.
This also depends on a few factors such as how much commission you are paying your Listing Agent, hopefully, six percent. Also on the price your property sells for. Keep in mind that 2% of Title Company fees is just a rough way of estimating. Most title fees are standard, so if your property sells from between $200K-$500K it will be around 2%. This “rule of thumb estimating percentage” is much lower for properties sold in the millions. My suggestion is to have your Listing Agent get a pre-settlement from the title company before listing. This way you know exactly what you will be paying.
So what are the closing costs for the Seller besides the commissions, you ask? Documentation stamps on the deed, pro-rated taxes (will depend on the time of year), the owner's title insurance, title company settlement fee charge, the title search fee, lien search fee, HOA estoppel letter fee, and your loan pay off (if any).
Contact Freeman Realty Solutions today so we can get started working for you!