Buyer or Seller: Who Pays for Closing Costs and Title Insurance?
Curious who pays for closing costs and title insurance upon closing?
Title insurance is confusing for anyone who’s a first-time home buyer. What type of title insurance policy is required to own a home, and who is responsible for paying the closing costs and title insurance?
Before closing a home, there are some things you should know about title insurance.
Is title insurance required?
Title insurance is not required to own a home. However, without it, you lack protection from claims against your ownership of the home and risk losing your investment in the process. There are extreme cases where a title insurance policy saves you from nightmare scenarios, such as hidden taxes, encumbrances, restrictions, and anything that devalues the home or is inaccurately recorded in the deed.
Even if you believe you can trust the person selling the home, the home itself could come with unknown problems that cause issues later on down the road. It’s always a good idea to be safe and be sure you own by investing in a title insurance policy.
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Who pays for owner’s title insurance or closing costs?
In the case of the home buyer’s title insurance policy, it is customary for the seller to pay the costs of the policy issued to the new home owner. Mortgage lenders also require a title insurance policy. It’s customary for the lender’s policy to be paid by the home buyer.
In reality, the home buyer’s escrow funds end up paying for both the home owner’s and lender’s policies. Upon closing, the cost of the home owner’s title insurance policy is added to the seller’s settlement statement, and the lender’s title insurance policy is covered by the buyer before closing.
How much should you pay in closing costs?
For most home buyers, closing costs are a percentage of the total cost to buy a home. Most of the closing costs are the responsibility of the home buyer, which typically average about 2 to 5 percent of the sale price. For a home that’s $250,000, the closing costs would be anywhere between $5,000 and $12,500.
Among the expenses are things like:
- Attorney Fees
- Appraisal & Credit Report Fees
- Loan Origination & Escrow Fees
- Lender’s Title Insurance Policy
- Recording, Title search, & Underwriting Fees
- Survey & Inspection Fees
Some costs are optional, may be transferred to the seller, and vary in price from state to state. It all depends on how you choose to do business. Some states with high real estate costs may experience higher fees for things like escrow deposits.
Oftentimes, the buyer’s closing costs can be worked into the initial price of the home or original contract with the seller. For instance, the home buyer may request to bid on a home by asking the seller to pay for 3 percent of the closing costs or even a set dollar amount.
Need help estimating your home closing costs?
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Are you planning to close on a home soon?
Then, it’s a good idea to work with a knowledgeable team of title insurance experts. Bay National Title Company offers reliable real estate owned and title insurance services for home buyer and lenders. Get in touch with BNTC to achieve a better closing experience.