Closing Costs and Transfer Taxes: Buyer vs. Seller Splits and Limits

In a typical home purchase, closing costs and transfer taxes are split between buyer and seller by a mix of loan requirements, local custom, and whatever the purchase contract says. Buyers generally pay the lender-related charges, prepaid escrow items, the lender’s title insurance policy, and recording fees for the new mortgage. Sellers generally pay real estate commissions, the owner’s title insurance policy, their prorated share of property taxes, and any outstanding liens. Transfer taxes are the wild card: statutes rarely dictate who writes the check, so who pays follows regional practice and can be negotiated. Total closing costs usually run 2% to 6% of the purchase price.

The Buyer’s Side of the Table

Most buyer costs come from the mortgage itself. The loan origination fee, which covers the lender’s processing and underwriting work, generally runs 0.5% to 1% of the loan amount. On a $400,000 loan that is $2,000 to $4,000. Add an appraisal fee of roughly $300 to $425 for a standard single-family home and credit report charges of about $35 to $50 per applicant.

Title work sits alongside the lender fees. A title company searches public records to confirm the seller actually owns the property and that no liens, judgments, or competing claims are outstanding. Two policies usually issue at closing. The lender’s policy protects the mortgage holder against title defects and is required for virtually every mortgage; the buyer pays for it. The owner’s policy protects the buyer’s equity for as long as they or their heirs own the home, and in most parts of the country the seller pays for it, though this is one of the items that shifts by region. Buying both from the same company at the same time triggers a simultaneous-issue rate that lowers the combined premium.

Then come the prepaid items the lender collects so property taxes and homeowners insurance stay current. You typically prepay the first year’s homeowners insurance premium, deposit several months of estimated property taxes into an escrow account the servicer manages, and pay per-diem mortgage interest for the days between closing and the end of the month.

Government-backed loans add their own upfront charges to the buyer’s column. FHA-insured loans carry an upfront mortgage insurance premium of 1.75% of the base loan amount, collected at closing or rolled into the loan balance. On a $300,000 FHA loan, that is $5,250 before any other closing costs. VA-backed purchase loans charge a funding fee that varies with down payment and prior use of the benefit: first-time users putting less than 5% down pay 2.15%, dropping to 1.5% at 5% down and 1.25% at 10% or more. Second-time users with less than 5% down pay 3.3%. Veterans with service-connected disabilities are exempt.¹

The Seller’s Side of the Table

Sellers have historically carried the largest single line item at closing: real estate agent commissions, typically 5% to 6% of the sale price covering both sides of the deal. That structure shifted in 2024 after the National Association of Realtors settled a class-action lawsuit and changed its MLS rules. Listing agents can no longer advertise offers of compensation to buyer agents through the MLS, and buyers must sign a written agreement with their agent specifying the amount or rate of compensation before touring homes.² Sellers may still agree to cover the buyer agent’s fee as a negotiation tool, or buyers may pay their agent directly. Either way, who pays what for representation now gets written into the listing agreement and the purchase contract.

Beyond commissions, sellers commonly pay for the owner’s title insurance policy, their prorated share of property taxes for the days they owned the home during the current tax period, and any outstanding liens or assessments on the property. If the seller has already paid taxes for the full year, the buyer reimburses them for the remaining days. If tenants occupy the property, prorated rent and security deposits transfer to the new owner as credits on the settlement statement.

Sellers can also agree to a flat contribution toward the buyer’s closing costs. That credit appears as a reduction in the seller’s net proceeds and a matching reduction in the buyer’s cash to close.

Who Pays the Transfer Tax

Most states and many local governments charge a transfer tax when real property changes hands, calculated as a percentage of the sale price or a flat amount per increment of value. Rates range from roughly 0.1% to 3% depending on jurisdiction. Roughly a third of states impose no state-level transfer tax, though local governments in those states may still charge their own. On a $500,000 sale in a jurisdiction charging $2 per $500 of value, the transfer tax is $2,000.

Who writes the check is largely a matter of local custom and can be negotiated in the purchase agreement. In some markets the seller pays; in others the buyer pays; in still others the parties split it. What is not optional is paying it. The county recorder’s office will not accept the deed for filing until the transfer tax is paid, and without recording, the transfer has no legal effect against future creditors or competing claims.

Recording fees are a separate, smaller charge covering the county’s administrative cost of filing the deed and mortgage, typically $50 to $200 per document depending on document length and local fee schedules. Buyers usually pay recording fees tied to the new mortgage; the deed recording fee follows local practice.

Limits on Seller-Paid Closing Costs

Even when a seller agrees to help cover the buyer’s closing costs, the loan program caps the contribution. Exceed the cap and the excess is treated as a price reduction, which forces the lender to recalculate loan-to-value using the lower figure.

Conventional loans (Fannie Mae): 3% of the sale price when the buyer puts less than 10% down, 6% with a down payment between 10% and 25%, and 9% with 25% or more down. Investment properties are capped at 2% regardless of down payment.³
FHA loans: a flat 6% of the sale price, regardless of down payment or property value.
VA loans: 4% of the sale price for concessions beyond the buyer’s normal closing costs. Standard closing costs the seller pays, like transfer taxes or the buyer’s origination fee, do not count toward the 4% cap.

The concession also cannot exceed the buyer’s actual closing costs. If a seller offers $15,000 but the buyer’s costs only total $12,000, the extra $3,000 gets treated as a price concession under Fannie Mae rules, not paid to the buyer as cash back.³

Checking the Split on Your Settlement Documents

Three documents show exactly who pays what, and reading them side by side is where you catch a fee that landed on the wrong column or grew larger than promised.

Loan Estimate

Within three business days of a mortgage application, your lender must deliver a Loan Estimate showing projected interest rates, monthly payments, and an itemized list of estimated closing costs. For this purpose an application means the lender has your name, income, Social Security number, the property address, an estimated property value, and the loan amount you are requesting.⁴ Use it as your baseline for comparing lenders and for spotting fee increases later.

Closing Disclosure

The Closing Disclosure is a five-page form the lender must deliver at least three business days before closing.⁵ It contains final loan terms, projected monthly payments, and every closing cost broken down by category. Compare it line by line to the Loan Estimate. If a fee jumped or a new charge appeared, ask the lender to explain before closing day. Certain fee increases trigger a fresh three-day waiting period.

ALTA Settlement Statement

The ALTA Settlement Statement is the standardized form the title or escrow company uses to show both sides of the transaction on a single document.⁶ It includes the sale price, earnest money deposit, loan amounts, prorated property taxes, and every credit or debit assigned to each party. This is the clearest picture of what each side actually pays.

Which Fees Can Change

Federal rules sort closing costs into three tolerance categories that limit how much fees can increase between the Loan Estimate and the Closing Disclosure.

Zero tolerance, meaning the fee cannot increase at all: loan origination fees, discount points, transfer taxes, and fees paid to the lender or its affiliates. If any of these go up by even a dollar, the lender must issue a credit to cover the difference.⁷
10% cumulative tolerance: recording fees and third-party services the lender let you shop for, like title and settlement fees. Each individual fee can rise, but the total in this category cannot exceed the Loan Estimate total by more than 10%.⁷
No cap: prepaid interest, property insurance premiums, escrow deposits, property taxes, and fees for third-party providers you chose yourself rather than picking from the lender’s list.

If a lender violates a tolerance limit, they must cure the overcharge no later than 60 days after closing by refunding the excess.

Protect the Money Before You Wire It

Regardless of who ends up paying what, the buyer’s cash to close typically moves by wire, and that transfer is the single most targeted moment in a residential real estate transaction. Criminals hack into the email accounts of real estate agents, title companies, or attorneys, monitor transaction details, and send spoofed emails with fraudulent wiring instructions right before closing. The buyer wires funds to a thief’s account, and the money is usually gone within hours.⁸

Confirm wiring instructions by calling your settlement agent at a phone number you got independently, not from any email. Never follow wiring instructions sent by email, even when the address looks legitimate. Treat any last-minute change to wire instructions as a red flag until you have confirmed it directly by phone with the title company.⁸

Federal law also gives you some protection against inflated fees getting passed off as legitimate closing charges. Settlement service providers are prohibited from paying or receiving referral fees, kickbacks, or fee splits unless actual services were performed in exchange.⁹ The definition of a “thing of value” is broad, covering cash, discounts, trips, special loan terms, stock, and profit-sharing opportunities.¹⁰ Affiliated business arrangements are allowed, such as a brokerage that owns a title company, but the referring party must disclose the relationship, give an estimate of the charges, and cannot require you to use the affiliated service as a condition of the transaction. If a charge on your Closing Disclosure bears no reasonable relationship to the service provided, that is worth asking about before you sign.

1
U.S. Department of Veterans Affairs. VA Funding Fee And Loan Closing Costs
2
National Association of Realtors. Summary of 2024 MLS Changes
3
Fannie Mae. Interested Party Contributions (IPCs)
4
Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs
5
Consumer Financial Protection Bureau. What Should I Do if I Do Not Get a Closing Disclosure Three Days Before My Mortgage Closing
6
American Land Title Association. ALTA Settlement Statements
7
eCFR. 12 CFR 1026.19 – Certain Mortgage and Variable-Rate Transactions
8
Consumer Financial Protection Bureau. Mortgage Closing Scams – How to Protect Yourself and Your Closing Funds
9
Office of the Law Revision Counsel. 12 USC 2607 – Prohibition Against Kickbacks and Unearned Fees
10
eCFR. 12 CFR 1024.14 – Prohibition Against Kickbacks and Unearned Fees