How Much Are Closing Costs in Philadelphia?

Beyond the property’s purchase price, buyers and sellers encounter additional expenses known as closing costs. These costs encompass various fees and charges necessary to complete the transfer of ownership, covering services, taxes, and other financial obligations. Understanding these components is crucial, especially in a market like Philadelphia, where unique local fees can significantly impact the total amount.

Common Buyer Closing Costs

Buyers typically incur a substantial portion of closing costs, often related to securing a mortgage loan. Lender fees include loan origination fees, which compensate the lender for processing the application, and underwriting fees for evaluating loan risk. Additional lender-related expenses may cover appraisal fees, credit report fees, and flood certification fees.

Title insurance is another significant expense for buyers, protecting against defects in the property’s title. This includes a lender’s policy, required by the mortgage provider, and an owner’s policy, which safeguards the buyer’s equity. Settlement or escrow fees are paid to a neutral third party, such as a title company or attorney, who handles the closing process and manages funds and documents.

Buyers are also responsible for pre-paid items, such as property taxes, homeowner’s insurance premiums, and pre-paid interest on the mortgage loan. Recording fees are charged by the local government to register the new deed and mortgage. Depending on the property and lender requirements, buyers might also pay for a property survey to confirm boundary lines.

Attorney fees are a potential cost if the buyer retains legal counsel to review documents and represent their interests. For properties within planned communities, buyers may face initial contributions or prorated homeowner association (HOA) fees at closing. These costs generally range from 2% to 5% of the loan amount for lender fees and a percentage of the purchase price for title insurance and other charges.

Common Seller Closing Costs

Sellers also face various closing costs. The largest expense is often the real estate agent commission, typically a percentage of the sale price paid to both the buyer’s and seller’s agents. This fee compensates professionals who market the property and facilitate the transaction. Sellers may also incur attorney fees if they opt for legal representation during the sale process.

Sellers must pay off their existing mortgage loan, including any outstanding principal balance and a per diem interest charge up to the closing date. Mortgage release fees cover the administrative costs of formally removing the lien from the property’s title. If the property is part of a homeowner association, sellers may need to pay prorated HOA dues or any outstanding fees.

Sellers are also responsible for their portion of settlement fees, paid to the closing agent. In some cases, sellers may need to resolve outstanding liens or judgments against the property before clear title can be conveyed to the buyer. These could include unpaid property taxes, mechanic’s liens, or legal judgments.

Philadelphia-Specific Costs: The Transfer Tax and Beyond

Philadelphia’s real estate market includes specific costs, most notably the Realty Transfer Tax. This tax is levied on the transfer of real estate ownership and consists of both a state and a city portion. Pennsylvania imposes a 1% transfer tax on the property’s value. As of August 2024, Philadelphia’s municipal transfer tax is 3.278%, resulting in a combined rate of 4.278% of the property’s sale price or assessed value.

The Philadelphia Realty Transfer Tax is typically split evenly between the buyer and seller, with each party responsible for 2.139% of the property’s value. For example, a $300,000 property incurs a total transfer tax of $12,834, with each party paying $6,417. While a 50/50 split is customary, the city can legally hold either party responsible for the full amount, making it a negotiable point in the agreement of sale. This tax is due when the deed is presented for recording, typically within 30 days of closing.

An upcoming change to the Philadelphia transfer tax will occur on July 1, 2025, when the city’s portion is set to increase from 3.278% to 3.578%. This will raise the combined state and city rate to 4.578%. For a $400,000 sale, this increase translates to an additional $1,200 in total transfer tax, or $600 per party if split evenly.

Beyond the transfer tax, Philadelphia has specific certifications. Pennsylvania law requires a Property Sales Certification when selling real estate, detailing the property’s zoning, last established use, and uncorrected violations of housing, building, safety, and fire ordinances. While “Use and Occupancy (U&O) inspections” are common in some suburban municipalities, they are distinct from the city’s business Use and Occupancy Tax. Sellers should clarify any specific requirements with their real estate professionals.

Factors Influencing Your Total Closing Costs

Several factors can cause total closing costs to vary. The property’s purchase price directly influences percentage-based costs like transfer tax and title insurance premiums. A higher purchase price leads to higher absolute costs for these items. The type of loan secured also determines lender fees and required pre-paid items; government-backed loans (FHA, VA) may have different fee structures than conventional mortgages.

The specific lender chosen can also impact the final cost. Different lenders have varying fee schedules for loan origination, underwriting, and other services. Comparing Loan Estimates from multiple lenders can reveal significant differences. Negotiation between the buyer and seller often dictates who pays for certain costs, as many can be subject to agreement in the sales contract.

The type of property also affects costs; a condominium might involve different HOA-related fees or specific insurance requirements compared to a single-family home. Market conditions can influence negotiation leverage, where a seller’s market might see buyers covering more costs, and vice-versa. Understanding these variables is crucial for accurately estimating closing expenses.

It is important to thoroughly review two key documents provided by the lender: the Loan Estimate and the Closing Disclosure. The Loan Estimate, provided after applying for a mortgage, offers an initial breakdown of estimated closing costs. The Closing Disclosure, received at least three business days before closing, provides a final, detailed list of all charges. Comparing these documents and asking questions about discrepancies helps avoid surprises at the closing table.