Closing Costs When Selling a Home: A Complete Guide
It might surprise you to learn that the average house in the United States is now worth over $350,000. Interestingly, this is more than double the price of the average house just 20 years ago.
In fact, housing prices have been increasing steadily for the past few decades. Although selling your home can bring in a lot of money these days, it’s still essential to understand home seller closing costs. Some sellers even find that they needed more money than they expected when they paid closing costs.
Let’s explore everything you need to know about closing costs when selling a home.
What Expenses Are Included in Closing Costs?
It’s essential to understand what you’ll be allocating money toward during this part of the transaction.
Listed below are some of the most notable. Let’s get started.
Real Estate Commission
The biggest closing cost is usually the commission for the real estate agent. This is typically around 6% of the sale price of the home. However, this can be negotiable in some cases.
For example, if your home sells for $350,000, you can expect to pay around $21,000 in commission. This fee is typically split between the buyer’s and seller’s agent.
Title insurance protects the lender and the buyer from any claims or issues with the property title. This is a one-time fee that’s usually a percentage of the sale price, but it can vary based on the state you live in. Keep this in mind when estimating your closing costs.
An escrow fee is charged by the company that holds onto the buyer’s deposit until the sale is complete. This is a way to ensure that both the buyer and seller are protected in case either party backs out of the deal. The escrow fee is typically a few hundred dollars.
Loan Origination Fee
A loan origination fee is charged by the lender for processing the loan. This is a percentage of the loan amount and can be anywhere from 0.5% to 1%. For a $350,000 loan, this would be between $1,750 and $3,500.
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An appraisal is typically required by the lender to make sure that the home is worth the amount of money they’re loaning to the buyer. Without an appraisal, there’s no way of knowing how much the home is truly worth. The fee for this service is usually around $300 to $400.
Home Preparation and Repairs
If you plan to do any work on your home before putting it on the market, this will need to be factored into your budget for closing costs. This could include obligations like repairing faulty wiring, improving the exterior of the home, etc. In general, the money you spend here will be put toward making the home more aesthetic and safer to live in.
You may also want to consider hiring a professional to stage your home before potential buyers come to take a look. This can help increase the sale price of your home and is definitely worth the investment. So, keep this in mind when moving forward.
What Decides Who Pays Closing Costs?
In most cases, the seller will pay for the majority of the closing costs. However, there are some instances where the buyer may be responsible for some of these fees.
It’s important to discuss this with your real estate agent before entering into any agreements. It’s also important to note that closing costs can sometimes be negotiated as part of the sale.
Can You Roll Closing Costs Into the Mortgage?
In some cases, you may be able to roll your closing costs into your mortgage. This means that you won’t have to pay for them upfront. However, this will increase the amount of interest you’ll need to pay over the life of the loan.
Should You Pay Closing Costs?
Paying closing costs is often seen as an investment in the sale of your home.
By paying these fees, you’re essentially increasing the chances that your home will sell quickly and for a higher price. In some cases, you may even be able to negotiate with the buyer to have them cover some of the closing costs.
Paying closing costs is often seen as an investment in the sale of your home. By paying these fees, you’re essentially increasing the chances that your home will sell quickly and for a higher price. In some cases, you may even be able to negotiate with the buyer to have them cover some of the closing costs.
This is something that you should discuss with your real estate agent before entering into any agreements.
Are There Any Tax Implications to Selling My Home?
Yes, there definitely are.
When you sell your home, you may have to pay capital gains tax on the profit you make from the sale. This is something that you should discuss with your accountant or financial advisor before making any decisions. Otherwise, you could end up owing a lot of money to the government.
What Are Some Other Costs to Consider When Selling My Home?
There are a few other costs to keep in mind when selling your home. First, you’ll need to pay for any necessary repairs or renovations. You’ll also need to pay real estate agent commissions (which we already mentioned).
Finally, you may need to pay transfer taxes when the title is transferred to the new owner.
Managing Closing Costs When Selling a Home Doesn’t Have to Be Difficult
As you can see, there are numerous closing costs when selling a home that you should consider. However, managing these costs doesn’t have to be difficult. By working with an experienced real estate agent, you can make sure that everything is taken care of and that you get the best possible price for your property.
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