Who Pays Closing Costs in Pennsylvania?

Closing costs are fees and expenses incurred during a real estate transaction, covering services from third parties like lenders, title companies, and government entities. In Pennsylvania, these costs are a standard part of the process. On average, total closing costs in Pennsylvania are around 4.3% of a home’s sale price, which is higher than in some neighboring states.

Buyer’s Closing Costs in Pennsylvania

Homebuyers in Pennsylvania encounter closing costs amounting to between 2% and 5% of the purchase price. These expenses include fees related to the mortgage loan, property assessment, and legal documentation. Loan origination fees are charged by lenders for processing a new mortgage, ranging from 0.5% to 1% of the loan amount. Buyers also pay fees for credit reports, under $50, and for recording the transaction with the local municipality, which can be a few hundred dollars.

Appraisal fees, between $300 and $500, are paid for a professional valuation of the property to ensure it aligns with the loan amount. Home inspection fees, also $300 to $500, cover a thorough examination of the property’s condition, though this cost is often paid at the time of service rather than at closing. Title insurance is another expense, with the buyer paying for both the lender’s title insurance policy, which protects the lender’s investment, and the owner’s title insurance policy, which protects the buyer’s ownership rights.

Buyers are also responsible for prepaid items, such as property taxes and homeowners insurance premiums, collected at closing to establish an escrow account. A portion of the Pennsylvania Real Estate Transfer Tax is generally paid by the buyer. This tax is imposed at a state rate of 1% on the value of the real estate transferred, with local municipalities and school districts adding another 1%, bringing the total rate to 2%.

Seller’s Closing Costs in Pennsylvania

Sellers in Pennsylvania incur closing costs that can range from 5.29% of the home’s purchase price, not including real estate agent fees, to a total of 6.25% to 9% when all expenses are factored in. These costs are deducted from the proceeds of the home sale. The largest expense for a seller is often the real estate agent commission, which historically averages between 5% and 6% of the sale price. This commission is split between the listing agent and the buyer’s agent, with sellers covering the entire amount.

Owner’s title insurance, which protects the buyer from potential title defects, is customarily paid by the seller in Pennsylvania. Sellers also pay their share of the Pennsylvania Real Estate Transfer Tax, which is usually 1% for the state and an additional 1% for local jurisdictions, totaling 2% in many areas.

Additional seller expenses include prorated property taxes, covering the period the seller owned the home up to the closing date, and any outstanding homeowners association (HOA) fees. Sellers may also have attorney fees for legal representation during the transaction, though this is optional in Pennsylvania. The mortgage payoff amount, including the remaining principal balance and any accrued interest, is a financial obligation settled at closing.

Shared Closing Costs and Negotiation

Some closing costs are shared between the buyer and seller or become points of negotiation. The Pennsylvania Real Estate Transfer Tax serves as a primary example of a cost that is split. This tax, 2% of the property’s value (1% state and 1% local), is divided equally between the buyer and seller, though the exact split can be determined through negotiation in the sales contract.

Seller concessions or credits represent another area where costs are shared or shifted. A seller agrees to pay a portion of the buyer’s closing costs or offer other incentives to facilitate the sale. This can be a strategic move in market conditions to make a property more attractive to potential buyers if they face high upfront costs. These concessions might include covering specific lender fees for the buyer or contributing to the buyer’s prepaid expenses.

Negotiating closing costs is an integral part of the real estate process, and the terms are formalized within the purchase agreement. Open communication between all parties, often facilitated by their real estate agents, allows for adjustments to who pays what. For example, while owner’s title insurance is a seller’s cost in Pennsylvania, a buyer might agree to cover it in a competitive market to strengthen their offer. Conversely, a seller to close a deal might absorb more of the buyer’s costs.

Understanding Closing Disclosures

The formal process of reviewing and confirming all closing costs relies on specific standardized documents designed for transparency. The Loan Estimate (LE) and the Closing Disclosure (CD) are two such forms that provide a comprehensive breakdown of transaction expenses. The Loan Estimate is provided by the lender to the borrower within three business days of a loan application, offering a summary of the loan terms, estimated costs, and interest rates.

Following loan approval and prior to closing, the Closing Disclosure form details the final terms of the mortgage loan and all associated fees and costs. By federal law, lenders must provide this five-page document to the borrower at least three business days before the scheduled closing date. This review period allows borrowers to examine all figures, compare them against the Loan Estimate, and address any discrepancies with their lender.

The Closing Disclosure outlines the purchase price, loan fees, interest rate, estimated property taxes, insurance, and other expenses. If changes occur to the loan terms or costs after the Closing Disclosure has been issued, a new disclosure may be required, which could trigger an additional three-business-day waiting period before closing can proceed. This process helps ensure that all parties are informed about the financial aspects of the transaction before finalization.