It’s easy to get caught up in the home buying/home selling process and forget closing costs, but closing costs are the last thing you should forget when you’re trying to budget smartly. Closing costs not only impact how much cash you can put toward a down payment, but also how much cash you can offer over the appraisal price in this crazy market, if need be.
Although new homebuyers tend to focus on the down payment and forget the nitty-gritty of closing costs, the closing costs for your home can approach or even surpass your down payment (especially if you’re putting less than 20% down). It’s important to estimate high for closing costs because you’ll need to pay for them out of pocket in order to close on your home successfully. Unlike your down payment, many of these costs can’t be rolled into your home loan (an inspection, for example, is paid for before you buy the home).
There are exceptions to this, and you will hear about “no-closing-cost mortgages” offered by lenders. However, mortgage advisor Robert Wagner notes that the consumer still ends up paying: “You can do that, but you’re doing a much, much higher rate,” he explains. And a higher mortgage rate can add on thousands of dollars over the lifetime of your loan.
In Pennsylvania, both the buyer and the seller will typically pay for selling costs, though buyers usually pay more. As you might notice, closing costs in PA can be higher on average than in other states - so this is definitely something to pay attention to, especially if this is your first time buying or selling a home in Pennsylvania.
What are the Average Closing Costs in PA?
If you’re looking for a very rough estimate, according to data from ClosingCorp, the average closing cost in Pennsylvania is $9,440 after taxes, or approximately 3.15% to 4.72% of the final home sale price - the largest expenses are taxes, which account for $6,390 of the average closing cost.
This average number will be too low for Philadelphia, though, as costs for the state’s largest city tend to be much higher - especially due to Philadelphia’s additional taxes.
“Based on my experience, 7% of the purchase price, that’s on the high end, so I would aim to have that - and if it’s only 5%, then you’re lucky, so to speak,” notes Philadelphia-based Realtor Allison Dubovsky. The average home price in Philadelphia is now $270,000 - so saving 7% to cover closing costs is equivalent to $18,900.
The final amount for closing costs is ultimately dependent on a wide range of variables, such as the cost of the home. Additionally, every transaction is different: some buyers may be paying all cash, while others are opting for a loan, and these decisions can impact closing costs as well. Even the time of year can impact your closing costs - if you buy a home earlier in the year, you’ll need to reimburse the seller for their prorated annual property taxes upfront.
“A cash buyer is going to pay significantly less most of the time; a cash buyer will still have title insurance, but they’ll avoid any lender fees and costs to escrow, etc.,” explains Wagner.
A mortgage advisor is your best resource for getting a more exact closing cost estimate, one that's based on your unique/specific situation.
Why are Pennsylvania Closing Costs so High?
According to Forbes, Pennsylvania ranks second in the country - only behind Delaware - for highest closing costs by percentage, which can often give people who have bought a home in other states quite a sticker shock when they go to close.
There are many reasons for this. Appraisals, for example, cost about $100 less in states like Missouri - which has very low closing costs. In Oregon, title insurance costs from $300-$600, while Pennsylvanians will pay closer to $1,000.
The reality is, though, that PA residents are often paying less in a real dollar amount. This is because many closing cost fees are fixed, rather than a percentage of the sale. A home inspection can cost the same for a $600,000 home as a $300,000 home, so long as they're the same size.
So while California may technically have some of the lowest closing costs by percentage, it's partially because the average home price in California is nearly 3x that of a Pennslyvania home - so the fixed-price closing costs are a comparatively smaller percentage of the sale.
Are PA Closing Costs Tax Deductible?
Closing costs in PA may be tax-deductible depending on what your closing cost expenses include. For example, some fees to the mortgage lender are deductible, and any mortgage points you paid to receive a lower interest rate are deductible. To find out if you qualify for closing costs tax deductions, consult with either your mortgage advisor or a tax professional.
Typical Buyer Closing Costs in PA
Buyers usually pay around 5%-6% of the home’s purchase price in closing costs. These costs are primarily made up of services required by their lender to complete the mortgage loan. Here’s a list of typical closing costs a buyer might encounter:
- Inspections (home, radon, pests)
- Transfer taxes (4% - usually split between buyer/seller)
- Title search
- Title insurance (.5-1% of the total price)
- Appraisal fee (average cost $400 for PA, Philadelphia average is $370)
- Survey fees if applicable (average cost of $1,075 for PA)
- Escrows
- Credit report
- Documentation preparation
- Notary fee
- Deed recording fee
- Flood certification
- Mortgage lender fees
- Tax reimbursements to seller
- Tax escrow service
- Broker/transaction coordination fee
You might end up paying additional fees depending on where you live, how you’re financing the home, and depending on the property itself. If you need to hire a structural engineer, for example, you can expect to pay about $500.
Typical Seller Closing Costs in PA
You might be wondering what's included in typical closing costs for home sellers. Here are the costs that sellers might need to cover:
- Agent commissions
- Fees for buyer’s title insurance policy
- Outstanding amounts owed on the property
- Transfer taxes (4% - usually split between buyer/seller)
- Escrow fees
- Recording fees
- Deed transfer tax
- Attorney fees
It’s important to note that closing costs will vary by state, city, and property. In 21 states - such as Florida and New Jersey, for example - attorneys are required to oversee closing. In other states, a settlement agent or an escrow company can be used in place of an attorney.
Can I Use a Mortgage Calculator to Determine Closing Costs?
Although you can use a mortgage calculator to get a rough idea of how much cash you’ll need to bring to the closing table, keep in mind that these calculators are often using broad national averages to determine estimated cost.
“The only mortgage calculators that I trust are where you plug in an interest rate and it shows you the payment. But even that can be wrong, because for a borrower who’s putting less than 20% down and is going to be paying PMI, mortgage insurance is not the same for every lender,” explains Wagner. “The lenders we use may have slightly lower charges for the PMI than another lender. So it’s hard to trust any of the mortgage calculators out there because they default to 20% and industry averages rather than specific rates.”
SmartAsset has a fairly nuanced online calculator for closing costs, as it allows you to specify by your city, down payment, type of loan (FHA or VA), etc. - all things that can impact your closing cost estimate.
Summary: How Much are Closing Costs in PA?
On average, buyers pay 5-6% of the home's purchase price in closing costs. Ultimately there’s no way to accurately determine exactly what your closing costs will be without consulting with your mortgage advisor. This is the best path forward because an experienced advisor will make sure you have the resources you need to successfully close on the home of your dreams. Contact our Pennsylvania team to get in touch with a Realtor and mortgage advisor today.
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