Closing costs are a staple when it comes to real estate transactions, but who is responsible for paying them? The short answer is that both parties might end up paying some closing costs. In a typical real estate transaction, both the home buyer and the seller have certain costs they are responsible for. And it’s all negotiable.
Home buyers tend to encounter the largest number of individual fees and costs, especially when a mortgage loan is being used. But the seller is usually on the hook for the real estate agent commissions, and this can be greater than all of the buyer’s closing costs combined.
In-Depth: Who Pays Closing Costs in Washington?
The term “closing costs” refers to the various fees and charges a home buyer might incur when purchasing a house using a mortgage loan.
Actually, buyers can encounter closing costs whether they pay cash or use a home loan to buy a house. But those who use mortgage financing tend to have more costs on closing day, due to the lender’s fees that are included.
In Washington, the buyer’s closing costs can include the following:
Home appraisal fee. Lenders typically require that a home is appraised by a lender-appointed appraiser to verify the current market value of a home. This will help the lender avoid any risky situations involving lending out more to a borrower than what the lender can recoup in the event that the borrower defaults on the loan. Appraisals can cost anywhere from $300 to $400 or more and are usually the responsibility of the buyer to pay.
Mortgage origination fee. A standard origination fee costs anywhere from 0.5% to 8% of the total loan cost, though it can be even more in some cases. The higher the loan amount and the higher the risk for the lender, the higher the origination fee could be.
Mortgage discount points / prepaid interest. Mortgage discount points are fees paid upfront to the lender at the time of closing in exchange for a lower interest rate. Discount points cost of 1% of your mortgage loan amount. For instance, if you buy a home for $500,000, one discount point would cost $5,000.
Prepaid home insurance premium. Homeowners insurance payments generally fall under the category of prepaid costs in terms of closing costs. Prepaid items are not directly tied to the purchase of a home, but they’re typically a requirement if applicable and must be paid in advance.
Credit report fee. Lenders use your credit score to determine if you are eligible for a mortgage. If you are, your credit score will also determine your mortgage interest rate. In order to verify your credit score, your lender will pull a copy of your credit report. Fees associated with these reports range from $30 to $50 per report.
Government recording fees. These fees are assessed by local and state government agencies for legally recording the deed, mortgage, and documents in relation to your mortgage. The national average for government recording fees is $125.
Lender title insurance. This type of title insurance is typically required to get a mortgage and protects the lender from any potential issues with the title of the home being purchased, such as a legal claim against the property.
Escrow closing fee (buyers side). Escrow fees are paid to the title company or escrow company to set up an escrow account for your earnest money deposit. The fees associated with this service cover paperwork and the exchange of funds.
Closing costs for sellers can include:
Real estate agent commissions. Real estate agents are paid a commission to sell a home, which is how they are paid. Commissions are typically paid by the seller and range anywhere from 4%to 6% of the sale price of the home.
Owner’s title insurance. This type of title insurance protects the seller if someone claims to have ownership in the home. The cost of title insurance varies depending on the value and use of the home.
Escrow closing fee (sellers side). This fee is charged to the seller and covers the cost of the escrow company that manages the holding and transfer of funds throughout the duration of a real estate transaction.
Any property taxes that are due. If property taxes are still not paid up until the closing date, the seller is still responsible for paying taxes owed before ownership transfers to the buyer.
Prorated homeowners association dues. Proration involves dividing certain property expenses between sellers and buyers that ensures that each party only pays for the specific days that they own the property. Sellers will need to pay their fair portion of any HOA fees as required.
As for who pays what closing costs in Washington State, this can vary from one transaction to the next. The terms of the deal are generally outlined in the real estate purchase agreement or contract, and that includes who will end up paying which closing costs.
What’s Your Real Estate Market Like?
The kind of real estate market you are in can also influence who pays what:
- In a buyers’ market where sellers are generally more eager to get an offer, they might be willing to pay some of the buyer’s closing costs.
- But in a sellers’ market, where there is high demand for housing but limited supply, sellers are generally less likely to pay for buyer closing costs.
By the way, when the seller agrees to contribute money toward the buyer’s closing costs, it’s referred to as a seller’s “concession.” Ask your real estate agent if such concessions are common in your local area.
Also keep in mind that it’s the seller who typically pays the real estate agent commissions. In some cases, sellers might be less willing to offer concessions since they are already covering the agent commissions. But again, all of this varies from one transaction to the next, and it largely depends on market conditions.
To recap: Who pays what closing costs in Washington State comes down to negotiations. But your negotiating ability will largely depend on the kind of real estate market you are in. Home buyers in Washington usually encounter more individual line-item closing cost expenses. But the seller might end up paying more money overall due to the agent commissions.
How Much Will You Pay in Closing Costs in Washington State?
Closing costs must be paid upfront in a real estate transaction. If you’re a buyer, you could be paying anywhere from 2% to 5% of the purchase price of the home. Sellers usually pay more, as much as 8% or more because they pay the real estate commissions, which can be as high as 6%.
Need a Loan in WA?
Are you curious about mortgages, or are you ready to apply for one to buy a second home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.