Who Pays Closing Costs on a House?

The buyer pays most closing costs on a house, including the lender's fees and the other costs of getting the mortgage. The CFPB notes that the purchase contract or state law can shift some costs to the seller, and a seller can agree to pay part of yours as a seller credit, up to a limit set by your loan type: 2% to 9% for conventional loans sold to Fannie Mae, 6% for FHA and USDA loans, and no cap on closing-cost credits for VA loans (other concessions are capped at 4%). You can also cover costs with a lender credit in exchange for a higher interest rate, and some loans let you add specific fees to the loan amount.

Which costs does the buyer pay and which does the seller pay?

Unless your contract says otherwise, expect to pay the costs tied to your loan and your new ownership. The seller pays the costs of getting out of the property.

Your own agent's pay works differently. Since August 17, 2024, buyers working with an agent who is a Realtor sign a written agreement that sets the agent's compensation, and you owe what that agreement says unless you negotiate for the seller or listing agent to cover it. Any amount left over is part of your cash to close.

The VA lists real estate commissions, origination fees, points, the appraisal, title insurance, recording fees, and state and local taxes among the costs a buyer and seller can negotiate. On your Closing Disclosure, a general amount the seller agreed to contribute appears as a Seller Credit on page 3; specific costs the seller pays may appear in the "Seller-Paid" column on page 2. What is included in closing costs explains each fee section and its timing.

How much can the seller pay toward your closing costs?

Each loan program caps seller help, which the programs call interested party contributions or seller concessions. The limits for a home you will live in, except where noted:

LTV, the loan-to-value ratio, is your loan amount divided by the lower of the price or appraised value. Fannie Mae measures its limits against that same lower value, and FHA and USDA measure against the sales price. The VA's reasonable value is on the Notice of Value your lender gets from the VA appraisal.

What counts toward each limit:

• Conventional (Fannie Mae): contributions can pay closing costs, including prepaids, and up to 12 months of HOA dues after closing. Customary fees a seller normally pays do not count. The credit cannot exceed your actual closing costs, and it cannot pay your down payment or reserves (savings the lender requires you to have left after closing).
• FHA: the 6% covers origination fees, other closing costs, prepaids, points, rate buydowns (money paid upfront to lower your rate or payment), and the upfront mortgage insurance premium, but not your 3.5% minimum investment. Commissions the seller pays under local custom do not count, and neither do pricing credits from a lender that is not the seller or agent.
• VA: the 4% cap applies to concessions beyond normal closing costs, such as the seller paying your VA funding fee, paying off your debts, or prepaying your homeowners insurance.

Example on a $400,000 home: with 5% down on a conventional loan, the seller can contribute up to $12,000 (3%). With 15% down, up to $24,000 (6%), but no more than your actual closing costs. On an FHA loan, up to $24,000. On a VA loan with a $400,000 reasonable value, concessions are capped at $16,000, plus any normal closing costs the seller agrees to pay.

A credit above the limit does not reach you as cash. Fannie Mae treats the excess as a sales concession, subtracts it from the price, and recalculates your LTV; FHA treats it as an inducement to purchase and subtracts it from the price before figuring the maximum loan. Either way, your loan amount can shrink. Before you ask for a credit in your offer, ask your lender for the cap that applies to your loan. Which closing costs are negotiable covers what to ask the seller and lender for.

Can the lender pay your closing costs?

Yes, through lender credits: the lender pays part of your closing costs, and you take a higher interest rate. The CFPB's example on a $180,000, 30-year fixed loan: accepting 5.125% instead of 5.0% brought a $675 credit toward closing costs and a payment about $14 a month higher. Lender credits appear as a negative number on the Lender Credits line in Section J of the Loan Estimate and on the Closing Disclosure.

A "no-closing-cost" loan uses lender credits, financing, or both, so you still pay through the rate or loan balance. In the CFPB example, the higher rate costs $13.80 more a month and also leaves a slightly higher balance. Counting both, the extra cost reaches the $675 credit after about 3 years, so the credit comes out ahead only if you sell, refinance, or pay off the loan before then. Ask lenders to quote the same loan with and without credits and compare the cost over the years you expect to keep it.

Does a mortgage loan cover closing costs, or can you roll them in?

On a purchase, mostly no. Each program caps the loan against the home's price or value, and only specific fees can go on top:

• Conventional: Fannie Mae sets the maximum loan as a percentage of the lower of the price or appraised value, so there is no added room for closing costs once you borrow the maximum.
• FHA: the base loan is capped at 96.5% of the lower of the price or appraised value. The upfront mortgage insurance premium of 1.75% can be added on top. On a $400,000 home, that is a $386,000 base loan plus $6,755, for a $392,755 loan.
• VA: on a purchase, the VA funding fee is the only closing cost you can finance. The fee is 2.15% for first-time use with less than 5% down, and you owe none if you are exempt, for example because you receive VA disability compensation.

A refinance gives you more room. On a Fannie Mae limited cash-out refinance, you can finance closing costs, points, and prepaid items, and you can take out no more than the greater of 1% of the new loan or $2,000 in cash. What it means to refinance a mortgage covers when that makes sense.

Financed costs carry interest. Adding $6,000 of closing costs to a 30-year loan at 7.32% raises the payment by $41.22 a month and costs about $8,838 in interest over the full term. Once you close, the costs you financed are part of the balance your servicer collects; what loan servicing is explains that side.