Closing costs in Pennsylvania

If you find yourself on the cusp of a real estate venture in the Keystone State, it’s crucial to set aside some extra funds for closing costs. These expenses, associated with finalizing a real estate transaction, can accumulate rapidly. From mortgage-related fees to agent commissions and attorney bills, both buyers and sellers need to be prepared for various costs when closing time arrives.

Here, we’ll dissect the expected closing costs in Pennsylvania, regardless of whether you’re the buyer or the seller.

How much are closing costs in Pennsylvania?

Closing costs encompass a spectrum of real estate-related expenses. Some charges are directly tied to the property, such as appraisal and title fees, while others are transaction-related, like municipality recording fees. Additionally, many costs are linked to financing, including mortgage origination and underwriting fees.

The total closing costs in Pennsylvania hinge on numerous factors, including the home’s sale price, real estate agent commissions, the property’s location within the state, and more.

According to CoreLogic ClosingCorp data, Pennsylvania’s average closing costs stand at 4.3 percent of a home’s final sale price. This figure leans towards the higher end compared to neighboring states like New Jersey at 1.7 percent, and Ohio at 2 percent. For instance, if you take 4.3 percent of Pennsylvania’s median home sale price, which was $298,600 as of June 2023, based on Redfin data, the typical closing costs would amount to $12,840.

Who pays closing costs in Pennsylvania, buyers or sellers?

In Pennsylvania, as in all states, buyers and sellers typically share the responsibility of closing costs. Certain expenses are traditionally attributed to one party or the other. For sellers, their closing costs are typically subtracted from the proceeds of the home sale.

Christa Ross, a Realtor with RE/MAX Select in Pittsburgh, notes, “In Pennsylvania, both parties pay some of the closing costs. For sellers, that primarily consists of real estate commissions, transfer taxes, deed preparation, and some settlement fees. For buyers, closing costs are commonly made up of lender fees, title insurance, transfer taxes, and settlement fees.”

It’s customary in the state for the buyer and seller to split the cost of real estate transfer taxes. Moreover, the allocation of some other closing costs can be negotiated before finalizing the contract. For example, if the seller is keen on a swift sale or has encountered limited buyer interest, they may agree to cover some of the buyer’s closing costs, often referred to as seller concessions. Additionally, if either party engages a real estate attorney, that expense will also be settled at closing.

Closing costs for buyers

Homebuyers in Pennsylvania typically bear the responsibility for various closing costs, including:

1. Loan Origination: Lenders often charge a fee for initiating a mortgage loan, typically ranging from 0.5 to 1 percent of the loan amount.
2. Credit Report: There’s typically a small fee for running a credit report, usually no more than $50.
3. Recording: Some municipalities charge a fee to record the transaction, which is generally modest but can reach a few hundred dollars in certain areas.
4. Title Search and Insurance: A title search confirms that the property has no liens or other issues that could affect ownership transfer. Title insurance provides protection against future claims on the title.
5. Appraisal and Inspection: A professional appraisal, required by the lender to confirm the home’s value, usually costs between $300 and $500. An inspection, while not mandatory, is highly recommended and carries a similar cost.
6. Mortgage Points: Some buyers may opt to pay mortgage points upfront to reduce the interest rate on their loan. This cost is typically 1 percent of the loan amount per point.
7. Transfer Taxes: In Pennsylvania, this tax for transferring property ownership is usually 1 percent of the sale price for state tax and another 1 percent for local tax. However, certain areas may have significantly higher local charges.
8. Property Taxes and Homeowners Insurance: These are often prepaid for a specific duration, payable at closing.

Closing costs for sellers

Sellers also bear their fair share of closing costs, including:

1. Real Estate Agent Commissions: This is typically the most substantial expense for sellers, ranging from 5 to 6 percent of the home’s sale price. For instance, on a median-priced $298,600 Pennsylvania home, 6 percent translates to nearly $18,000.
2. Transfer Taxes: This cost may be divided between the buyer and seller.
3. Property Taxes: These are usually prorated based on the time of year the property is sold and are due at closing.
4. HOA Fees: If the property is part of a homeowners association, prorated dues will also need to be paid.
5. Seller Concessions: If you agree to cover any portion of the buyer’s closing costs, that amount will also be due at closing.

Lowering your closing costs in Pennsylvania

While there isn’t much flexibility with most closing costs, both buyers and sellers can take steps to potentially reduce expenses. Sellers should be aware that their most significant cost, agent commissions, can often be negotiated. Even a slight discount can make a substantial difference, particularly for higher-priced homes.

Buyers, on the other hand, have more avenues to explore for minimizing costs. Seth Diener, a private wealth manager for Diener Money Management in Newtown, Pennsylvania, advises, “It’s advisable for buyers to shop around for a mortgage lender that offers competitive closing costs. Additionally, consider mortgages like an FHA, USDA, or VA loan, as they often have lower closing costs compared to conventional mortgage loans.”

Shane Whitteker, chief broker/owner of Principle Home Mortgage in State College, Pennsylvania, suggests that buyers can further help control costs by improving their credit score before applying for a mortgage. He notes, “Borrowers with lower credit scores will pay more closing costs on average per transaction.”

In conclusion

while closing costs are an inevitable part of any real estate transaction in Pennsylvania, understanding the breakdown and exploring strategies to mitigate expenses can help both buyers and sellers navigate the process more effectively.