How Much Are Closing Costs in MA & Who Pays For Them?

Closing costs are fees and expenses incurred by both buyers and sellers to finalize a real estate transaction. These costs are distinct from the home’s purchase price and cover services needed to transfer property. Understanding these financial obligations is important for overall financial planning when buying or selling a home.

Understanding Closing Costs

Closing costs arise from third-party services involved in a real estate transaction, provided by lenders, attorneys, title companies, and government agencies. Specific amounts vary due to factors like geographic location, loan type, and transaction conditions. Generally, these costs can be categorized into lender-related fees, title services, government charges, and prepaid expenses.

Buyer Closing Costs in Massachusetts

Homebuyers in Massachusetts typically encounter closing costs ranging from 2% to 5% of the total purchase price. This percentage can fluctuate based on the loan program and negotiated terms. For a median-priced home, these costs can represent a significant sum.

Lender-related fees constitute a notable portion of buyer closing costs. These include a loan origination fee, often around 1% of the mortgage loan amount, which covers loan application processing. An appraisal fee, typically $300 to $500, is also common for property valuation. Additional lender fees may include an underwriting fee, credit report fee, and charges for flood determination.

Title-related fees are also part of the buyer’s financial responsibility. Lender’s title insurance is generally mandatory for most loans, protecting the lender’s investment against title defects. Owner’s title insurance is optional but highly recommended, protecting the buyer’s equity from potential claims against the property’s title. Other title-related costs include a title search fee, which ensures a clear ownership history, and a settlement or escrow fee for managing the closing process.

Government recording fees are incurred to officially document the transaction with the state. In Massachusetts, recording the deed costs $155, recording the mortgage costs $205, and a municipal lien certificate costs $80. Buyers also pay attorney fees, which in Massachusetts often range from $600 to $1,500, as the buyer’s attorney frequently manages the closing process. Prepaid expenses, such as initial property taxes and homeowner’s insurance premiums, are also collected at closing to establish an escrow account for future payments. While often paid before closing, home inspection fees, typically $300 to $500, and survey fees are also part of the overall costs a buyer should anticipate.

Seller Closing Costs in Massachusetts

Sellers in Massachusetts also incur specific closing costs, which, including real estate agent commissions, typically range from 6% to 10% of the sale price. This estimate encompasses various fees and taxes unique to the seller’s side of the transaction. Understanding these expenses is important for accurately calculating the net proceeds from a home sale.

Real estate agent commissions represent the largest expense for sellers. The average total real estate commission in Massachusetts is approximately 5.53% of the home’s sale price, which is generally split between the listing agent and the buyer’s agent. This fee compensates agents for their services in marketing the property and facilitating the sale. Recent industry changes may lead to more negotiation regarding who pays the buyer’s agent commission.

The Massachusetts deed excise tax, also known as a transfer tax, is another significant cost for sellers. This state tax on the transfer of real property is mandated by Massachusetts General Laws Chapter 64D and is calculated at a rate of $4.56 per $1,000 of the sale price. This tax is typically deducted from the sale proceeds at closing. Sellers also pay attorney fees, which can range from $1,200 to $1,800, depending on the complexity of the transaction.

Costs associated with paying off an existing mortgage and recording its discharge are also borne by the seller. If the property has a septic system, a Title V septic system inspection is required under the Massachusetts Environmental Protection Act, with costs typically around $800. Additionally, obtaining a smoke and carbon monoxide detector certificate from the municipal fire department is necessary, usually costing between $50 and $100. Any prorated property taxes or homeowner association dues outstanding up to the closing date are also the seller’s responsibility.

Estimating and Preparing for Closing Costs

To estimate and prepare for closing costs, buyers and sellers should leverage specific financial documents. For buyers, the Loan Estimate (LE) is a crucial document provided by lenders within three business days of a loan application. This estimate details projected closing costs, loan terms, and anticipated monthly payments.

Prior to closing, the Closing Disclosure (CD) is provided at least three business days before the scheduled closing date. This document presents the final breakdown of all closing costs for both the buyer and seller. It is imperative to compare it against the initial Loan Estimate for any discrepancies.

While many closing costs are fixed, some fees, such as attorney fees or certain lender charges, may be negotiable. Shopping around for third-party services like title insurance, appraisals, and surveys, where permitted, can also lead to cost savings. Budgeting for these expenses early in the home buying or selling process is important to avoid unexpected financial burdens at closing.