Closing costs are typically divided between the buyer and seller. Either party can negotiate who pays what closing fees and how much.
- Buyer Closing Costs: From 2-5% of the home’s sale price.
- Seller Closing Costs: From 6-10% of the sale price, the majority being the agent commission.
Buyer Closing Costs Expanded
- Loan Origination Fees: The lender charges this fee to process your mortgage application. It typically ranges from 0.5% to 1% of the loan amount.
- Appraisal Fee: Lenders require an appraisal to determine the property’s value before approving a loan. This fee usually ranges from $300 to $600.
- Home Inspection Fee: Although not mandatory, getting a home inspection before purchasing a property is highly recommended. This cost typically ranges from $300 to $500. Mortgage lenders usually require a home appraisal report and inspection reports to determine the property value and the loan amount and calculate the risk involved. Without these, they may not approve the loan.
- Credit Report Fee: Lenders will pull your credit report to assess your creditworthiness, and you’ll be charged a small fee, usually around $30 to $50.
- Title Search and Title Insurance: A title search ensures there are no liens or legal claims against the property. Title insurance protects against future disputes over ownership. This fee can range from $500 to $1,500.
- Attorney Fees: In Massachusetts, having an attorney present at the closing is standard practice, and buyers typically pay their attorney fees, ranging from $500 to $1,500.
- Mortgage Insurance (if applicable): If your down payment is less than 20%, you may be required to pay private mortgage insurance (PMI). This cost can vary but is often between 0.3% and 1.5% of the original loan amount per year.
- Prepaid Costs: These include property taxes, homeowner’s insurance, and interest on the mortgage. Lenders usually require buyers to prepay a certain amount at closing.
- Recording Fees: When a deed is transferred, it must be recorded with the local county. This fee is typically around $100 to $200.
- Mortgage Points: Mortgage points are upfront payments to lower your loan’s interest rate. One point equals 1% of your mortgage amount.
Estimated Total for Buyer: 6-10% of the home’s sale price.
Seller Closing Costs Expanded
- Agent Commissions: The largest cost for sellers is typically the real estate agent’s commission, which can be around 5% to 6% of the home’s sale price. This fee is split between the buyer’s and seller’s agents.
- Attorney Fees: Sellers in Massachusetts also usually hire an attorney to represent them during the sale, and these fees can range from $500 to $1,500.
- Transfer Taxes/Excise Tax: The Massachusetts state tax on real estate transfers is $4.56 per $1,000 of the sale price. For example, if you sell a house for $300,000, you would pay approximately $1,368.
- Recording Fees and Deed Preparation: These costs are usually minimal, but sellers might be responsible for them, typically ranging from $100 to $200.
- Property Taxes: If the seller has already paid property taxes for the year, they may receive a credit for the portion of the year after the sale. Conversely, if taxes are due, the seller will need to pay their share up to the closing date.
Estimated Total for Seller: 6-10% of the home’s sale price.
Negotiating & Reducing Closing Costs
While certain closing costs are typically the responsibility of either the buyer or the seller, there’s always room for negotiation. For instance, buyers can request that sellers cover some or all of their closing costs as part of the purchase agreement, especially in a buyer’s market where sellers might be more willing to make concessions to close the deal. In a seller’s market, however, buyers might have less leverage.
- Title Insurance for Buyer: In some cases, the seller may agree to cover the buyer’s title insurance policy, which protects the buyer against any title disputes.
- Outstanding Liens: If there are any outstanding liens or mortgages on the property, these must be paid off at closing.
- All Closing Costs: If you have a motivated seller and a high market inventory, you may be able to negotiate that they pay all closing costs. Smart sellers will price in the closing costs that many buyers will ask for.
- Sell To A Cash Buyer: As a seller, selling to a cash home buyer can help eliminate realtor commissions and other closing costs.
- Shop Around for Lenders: Different lenders offer varying rates and fees, so it’s wise to compare multiple offers to get the best deal.
Are Closing Costs Tax Deductible?
In Massachusetts, some closing costs may be tax-deductible. Typically, the mortgage interest is paid at closing, and any real estate taxes can be deducted. However, costs like attorney fees, appraisal fees, and inspection costs are not deductible. Talk with a tax professional to determine which expenses can be deducted from your tax return.
