Home Buyers and Seller Closing Costs – Portland, Oregon Metro Area Report
For some people, “closing costs” is a vague term attached to selling or buying a home. Many aren’t clear about who pays what. Educating yourself on this part of the home selling/buying process is essential for a successful and surprise-free transaction.
Closing costs vary from state to state. Also, because they’re based on the cost of the home in question, closing costs in the Portland metro area will be higher than other parts of Oregon due to comparatively higher home prices in the area. Keep in mind that some of these fees are payable to the lender and others to third parties, like home appraisers and title agencies.
We want to dispel some of the mystery and confusion around what seems a necessary evil for anyone wanting to buy or sell a home. Here, we break down all the pieces of the puzzle for Oregon residents.
First, let’s look at what costs belong to the seller.
What Closing Costs Does the Seller Pay?
Title Insurance: Title insurance is protection for both the seller and the lender should title complications or disputes arise during or after the sale. Basically, it prevents the loss of equity or interest. Learn more about the seller’s title insurance responsibilities here. Title insurance is issued by a title company like Fidelity National Title, among a number of others.
Half of Escrow: It’s a general consensus in Oregon that sellers and buyers split escrow costs down the middle. The basic formula to calculate escrow (always subject to change) is: Escrow Fee = $1 per $1000 plus $1200 split 50/50 between buyer and seller. Learn more about escrow here.
Lien Fee: There are different types of liens on a home, a mortgage being one of them. It’s the seller’s responsibility to have liens removed from the home they’re selling. If a seller has a first and second mortgage on their home, that’s two liens. If they have an additional home equity line on their home, that’s a third lien. In a case like this, the seller would pay $200 per lien, for a total of $600. This ensures that the buyer can receive a clean title and deed when it all transfers over. Other types of liens include tax liens, mechanics liens, or judgment liens.
Local Government Fee: Right now the typical fee for this is $25 per tax lot.
Buyer’s and Seller’s Agent: Why would a seller pay commission to both? Read our article on this very subject to find out. This cost could be anywhere from $1 to over $10,000. It depends solely on what the buyer and seller negotiate on the home sales contract. In Oregon, the seller will typically pay the commission for both the Buyer’s and Seller’s agent. This will be covered in the listing agreement.
Washington County Pays Extra: Sorry folks. If you sell in Washington County, you’ll also pay an additional “transfer tax“, which is calculated at $1 per $1000 of the sale price, split 50/50 between the seller and the buyer.
Can Elect to Pay Buyer’s Closing Costs: Sometimes sellers elect to pay the buyer’s closing costs upfront, which allows the buyer to make a higher offer. The costs get folded into the loan amount. Essentially, the seller still pays them, but the amount is spread out over the length of the mortgage. This is not common during a hot seller’s real estate market, but is common in a buyer’s market.
Here’s an example of seller closing costs.
|Example for $500,000 Home||Seller Pays|
|Half of Escrow||$850|
|Release and tracking fee per lien (loan) closed out:||$200|
|To record each tax lot as sold:||$25|
|County recording fees (paid per page), rough estimate:||$120|
|If they live in Washington County||$250|
Seller’s closing costs usually come out of the equity on the home they are selling, not directly out of their pocket. This may not be the case if there is not enough equity in the house to cover closing costs.
What Closing Costs Does the Buyer Pay?
So, if the seller pays for all of the above, what can you, as a buyer, expect to pay when you buy your next home?
Credit Check: This covers the cost of the lender initially checking your credit to ensure you are qualified for a loan. This fee is usually around $30.
Origination Fee: This covers the lender’s administrative costs to initiate your loan and is often 1% of the total mortgage.
Title Search and Insurance: Wait a minute. Didn’t we just say that the seller pays the title insurance? Yes, that’s right and it protects the seller. As we also say, the lender requires title insurance to protect their interests in the property. This responsibility falls in the lap of the buyer and is usually about 1% of the total mortgage. Learn more about the buyer’s title insurance responsibilities.
Escrow: The purpose of escrow is to ensure that: 1) to protect the buyer’s money, their earnest money deposit and their downpayment funds and ensure they go to the correct party at the right time, and 2) determine the homeowner’s balance to make sure everything is paid out and prorated at closing: homeowner’s insurance, possible HOA fees, mortgage payoffs, property taxes, liens, and more. The fees for a qualified escrow officer, like Kim White at Fidelity National Title, are well worth it. A good escrow officer will ensure your sales transaction goes smoothly, from start to finish.
Recording Fee: This fee is charged by a local government agency for registering the purchase or sale of a piece of real estate. This is done at the county level.
Washington County Transfer Tax: See above seller’s closing cost example as this is split with the seller 50/50.
Optional / Occasional Fees
- Attorney’s fees: This is optional in Oregon and Washington. But if you’re buying a home with unusual circumstances or encounter a complicated sale, you might want to invest in a real estate attorney who can help you navigate through any pitfalls that may arise.
- Discount points: Sometimes buyers have enough cash on hand to buy down points on a home to reduce the interest rate. This will in turn lower your monthly payment due to a lower overall interest rate.
- Home appraisal fees: While these fees are almost always paid by the buyer, they’re not always paid at closing. Typically they’re paid for before closing, when services are rendered.
- Home inspection fees: This is typically always paid upfront by the home buyer and can run $200 to $2000 or more depending on the type and number of tests ordered. Usually the buyer’s agent will have a preferred inspector they recommend for this service.
- Homeowner’s insurance: This insurance is required by your lender (usually enough to cover one year), sometimes before closing, and sometimes at closing. This cost can be rolled into your overall mortgage payment.
- Underwriting fees: This fee covers the task of creating the loan. It is sometimes included in the origination fee.
When all is said and done, you can expect to pay somewhere between 5% to 7% of the cost of your new home at closing.
Can a Home Buyer Get Closing Cost Assistance?
Thankfully, there are government programs on a federal and state level to help offset home buyer closing costs. While some of these programs have very specific guidelines, they can be useful for first-time homebuyers or people looking to offset their closing costs to pay more as a downpayment.
Some of the things that can impact eligibility for these programs include:
- Minimum credit score
- Property requirements
- Loan type
- Homebuyer status
- Homebuyer education
- U.S. residency
Keep in mind that since there are several grant and loan programs to help buyers with closing costs, the requirements can change depending on the loan type. There are also grant and loan programs to help with downpayments. If you’re looking to get closing cost assistance, make sure to do your research on the requirements for each loan/grant/fund to ensure you fall within the guidelines. An experienced real estate agent can also help you navigate these funds.
Federal Low(er) Home Buyer Closing Cost Programs
There are several federal loan programs that allow for lower closing costs. These include:
- Federal Housing Authority (FHA) Loan: This FHA-insured loan is a low downpayment option, requiring as low as 3.5% of the purchase price in closing costs.
- Conventional 97 Loan: Provided by Fannie Mae and Freddie Mac, this conventional mortgage has a down payment as low as 3% of the housing price.
- HomeReady Mortgage: This mortgage from Fannie Mae for single-family homes allows for home down payment financing as low as 3%. It also allows buyers to use gifts and grants toward the downpayment.
- Home Possible Mortgage: Another loan from Freddie Mac, this loan program has a downpayment as low as 3%, and like the HomeReady Mortgage, allows for gifts and grants to be used toward closing costs.
- Veterans Affairs (VA) Loan: These loans are available through Veterans Affairs for veterans, active-duty service members, and their spouses, and require no downpayment. These loans do have other closing costs to consider, however, so it’s best to research them fully before committing to the loan type.
- USDA Loan: Specifically aimed at low- and medium-income households, USDA loans can require no downpayment, freeing up funds for closing costs.
Oregon Closing Cost Assistance Programs
There is only one loan program aimed at offering closing cost benefits in Oregon (specifically for first-time homebuyers): the Oregon Bond Residential Loan Program. This program offers either a cash advantage or rate advantage loan. The cash advantage loan provides a competitive interest rate as well as cash up equal to 3% of their home loan amount to help with closing costs. It is worth noting that the cash from this loan cannot go toward the minimum investment for an FHA loan.
Get Closing Cost Estimates Today
To get a better idea on this and all closing costs on any home you might be interested in buying or selling, you can use Fidelity National Title’s handy closing cost estimator. But please remember this is only an estimate. You can use the tool to get a ballpark idea of your potential closing costs, but it will require working with an escrow officer to calculate the actual amount.
Are Closing Costs Negotiable?
The short answer is “yes.” Negotiations are usually done between the buyer, seller, and lender. When it comes to government and third-party fees, negotiation becomes more difficult, if not nearly impossible.
Reasons for a buyer wanting to negotiate closing costs can vary, but often, this can occur after the inspection is complete and the buyer is aware of needed repairs and improvements—usually big-ticket items like plumbing, roofing, or foundation issues. A buyer could negotiate to have their closing costs covered instead of requiring that the repair be finished. Be aware that there are some repairs that a lender may require before approving a loan on a house, even if you agreed to having closing costs covered in lieu of repairs.
So, what costs and fees can you negotiate before closing on your new home?
Homeowner’s Insurance: While paying this insurance isn’t negotiable, the amount could be. Rather than accept the homeowner’s insurance policy that the lender picks, you can shop around to see if you can find a better price. You should call your current insurance agent to see what rates and/or discounts you could receive by adding Homeowner’s Insurance on to your current policy. You may be surprised at the savings you could receive by bundling several policies.
Discount Points: Mentioned above. It is best to determine the options with your lender.
Origination Fee: Some lenders will reduce or remove this fee altogether. You never know until you ask, so it is worthwhile to find out.
Underwriting Fee: As indicated above, sometimes this fee is included with the origination fee. If your lender presents it as a separate fee, as with the origination fee, you can always ask for them to waive it.
Real Estate Commissions: Typically, the seller pays the commission for both the buyer’s and seller’s agents from the proceeds of the sale. This means typically it is the seller that negotiates real estate commissions (which are always negotiable).
Title Insurance: There is no getting around title insurance that we are aware of, and the fees seem to be relatively similar across the board. However, it never hurts to ask.
How Can I Find a Good Title Company?
Ask us! We work with title experts across Oregon and Washington, and can help you find the title company that best meets your needs. Contact our top 1% seller’s agents (503-714-1111) or our top 1% buyer’s agents (503-773-0000) today or chat with the bot on our website. We’re happy to help!April 7, 2023