Closing Day: Buyer Costs, Seller Costs

Closing costs for FHA loans typically total between 2% to 6% of the sales price. These expenses are separate from the 3.5% down payment and include fees for loan processing, title verification, and government taxes. 

While buyers primarily pay for services related to their mortgage, sellers usually cover closing costs, including agent commissions and title clearance costs. Both parties must settle these obligations at the closing table to complete the legal transfer of the home.

What specific lender fees should a buyer expect at closing?

The loan origination fee is typically about 1% of the total loan amount, used to cover application processing. Underwriting fees are also standard and cover the professional who evaluates the borrower's financial risk. If a buyer chooses to lower their long-term interest rate, they pay for discount points equal to 1% of the loan amount, paid upfront at closing.

How does the Upfront Mortgage Insurance Premium impact the buyer?

The FHA program requires a one-time fee, the Upfront Mortgage Insurance Premium, typically 1.75% of the total loan amount. FHA allows buyers to roll this amount into the mortgage balance, which reduces the immediate cash needed to close the deal.

What are the common third-party fees for an FHA buyer?

An appraisal is mandatory. Buyers also pay for a credit report fee and a formal home inspection. Title insurance is another major third-party cost, and protects the lender and the new owner if a legal dispute over property ownership arises later. In some states, a land survey is also required to verify property boundaries and check for encroachments.

The buyer must fund an escrow account for property taxes. Depending on the time of year, the lender may collect several months of taxes upfront to ensure enough money is available when the tax bill arrives. Per diem interest is a third-party cost that covers the loan interest from the day of closing through the end of that calendar month.

What are the standard seller closing costs?

Sellers focus on the costs of selling the asset and delivering a clear title to the new owner. The largest seller expense is the real estate commission, typically 5% to 6% of the sale price, and split between the listing and buying agents. 

Sellers may also pay for government transfer taxes and recording fees to update the deed. They must also pay off their remaining mortgage balance and any outstanding property taxes accrued during their time of ownership.

How do seller concessions assist a first-time buyer?

FHA guidelines allow sellers to contribute up to 6% of the purchase price toward the buyer’s expenses. These funds can be used for origination fees, appraisal costs, and even the upfront mortgage insurance premium.

Can a seller pay for the buyer’s down payment?

No, FHA rules prevent the seller from contributing to the buyer’s 3.5% minimum down payment. The 6% concession limit applies only to closing costs, prepaid items, and discount points. The down payment may come from the buyer’s own documented savings, a gift from a family member, or a government down payment assistance program.