What Are Closing Costs in Massachusetts?

Real estate transactions involve costs beyond the purchase price. These additional fees and expenses, known as closing costs, are incurred by both buyers and sellers to finalize a real estate deal. Closing costs encompass various services, taxes, and administrative charges necessary to transfer property ownership. While standard, their total amount varies significantly based on property location, transaction type, and required services.

Closing Costs Typically Paid by Buyers

Buyers generally encounter closing costs associated with securing a mortgage loan and ensuring property condition and clear title. Lender fees are a significant portion, covering loan processing and underwriting. These include loan origination fees (0.5%-1% of the loan amount), application fees, underwriting fees, and credit report fees.

Buyers also pay for property assessments. An appraisal fee ($300-$600) ensures the property’s value supports the loan amount. Inspection fees ($200-$500) cover home, radon, lead paint, or pest inspections, providing crucial property information. These inspections are typically paid at the time of service.

Buyers pay for lender’s title insurance (0.1%-2% of purchase price), which protects the mortgage lender against future claims or title defects. Massachusetts buyers also hire an attorney ($800-$1,500) for representation. Recording fees are paid to the local government to register the new deed and mortgage. Prepaid expenses, such as property taxes and homeowner’s insurance premiums, are often collected at closing to establish an escrow account.

Closing Costs Typically Paid by Sellers

Sellers incur closing costs, with real estate broker commissions usually representing the largest expense. These commissions (5%-6% of sale price) cover both agents’ fees and are generally deducted from sale proceeds. For instance, on a $600,000 home, commissions could amount to $30,000 to $36,000.

Another significant cost for Massachusetts sellers is the owner’s title insurance policy. This policy protects the buyer from title defects that existed prior to the sale and is often paid by the seller. Sellers also engage their own attorney ($750-$2,000) to navigate the sale’s legal complexities.

Sellers are responsible for paying off any outstanding liens or existing mortgages, which may involve nominal fees for wire transfers or document preparation. Property taxes and homeowner association (HOA) dues are prorated at closing, with the seller paying their share up to the closing date. Recording fees are also associated with discharging the seller’s mortgage from the public record.

Massachusetts-Specific Closing Cost Considerations

Massachusetts has specific closing cost considerations. The Massachusetts Deed Excise Tax, or “stamps,” is a state transfer tax on real estate sales. This tax (G.L. c. 64D) is almost always paid by the seller, calculated at $4.56 per $1,000 of consideration, rounded up to the nearest $500. A $400,000 home, for example, incurs an excise tax of $1,824.

Massachusetts is an “attorney state” for real estate closings, meaning attorneys play a central role. Both buyers and sellers typically retain legal counsel, making attorney fees a standard closing cost. This ensures legal representation and oversight throughout the complex closing process.

Properties with septic systems often require a Title V septic system inspection (310 CMR 15). This inspection, costing around $800, assesses compliance with state environmental standards. Any necessary repairs or upgrades identified may become additional costs, often negotiated between buyer and seller.

Sellers must obtain a Smoke and Carbon Monoxide Detector Certificate from the local fire department (M.G.L. c. 148). This certificate verifies the property meets safety regulations. Fees range from $50 to $150, depending on the municipality and property type.

Understanding the Closing Disclosure Document

The Closing Disclosure (CD) is a standardized, five-page document detailing final mortgage loan terms and itemizing all buyer closing costs. Mandated by the TILA-RESPA Integrated Disclosure (TRID) rule, the CD replaced previous forms like the HUD-1 Settlement Statement. Its purpose is to enhance transparency and ensure consumers understand their financial obligations.

The CD includes loan terms, projected payments, and a detailed breakdown of costs categorized by payer (borrower-paid, seller-paid, or third-party fees). It also outlines the “Cash to Close” amount, which is the total funds the buyer needs at closing. Buyers typically receive the Closing Disclosure at least three business days before the scheduled closing date.

This three-day review period allows buyers to examine final figures, compare them against the initial Loan Estimate, and ask questions before finalizing the transaction. The Closing Disclosure prevents last-minute cost surprises and ensures the buyer is fully informed before committing to the loan and property purchase.