Who Pays Closing Costs in Kentucky: Transfer Tax and Concessions

In Kentucky, both sides pay at closing, but the split is predictable: buyers cover the loan-related fees and the money their lender needs to set up escrow, and sellers cover the real estate commissions, the state transfer tax, and usually the owner’s title insurance policy for the buyer. Kentucky also requires a licensed attorney to handle the closing, which adds a cost that some other states don’t impose. Most of this is negotiable in the purchase contract, so the question of who pays closing costs in Kentucky often comes down to what the two parties agreed to in writing.

What Buyers Pay

Most of a Kentucky buyer’s closing bill is tied to the mortgage. The lender charges an origination fee, generally 0.5% to 1% of the loan amount, which on a $250,000 loan runs $1,250 to $2,500. A credit report pull typically costs under $30.¹ An appraisal, which the lender orders to confirm the home is worth the loan amount, usually runs $450 to $700 for a standard single-family home. A home inspection, which the buyer pays for separately, runs $300 to $500.

The lender will also require a lender’s title insurance policy. It protects the lender if someone later challenges ownership of the property.² The policy lasts for the life of the loan.³

Prepaid Items and Escrow Deposits

Buyers also owe a separate category of money at closing that isn’t really a fee for anything. These are prepaid items — advance payments for ongoing homeownership costs that the lender collects upfront to protect its position.

Prepaid mortgage interest from the closing date through the end of that month. Close on the 25th and you owe five or six days; close on the 3rd and you owe nearly a full month.
A homeowner’s insurance premium, usually six to twelve months paid in advance.
An initial deposit into the property tax escrow account, generally two to three months’ worth.
Private mortgage insurance reserves if the down payment is under 20%.

Together these can add several thousand dollars on top of the down payment and the fees above. The exact figures appear on the Closing Disclosure the lender must deliver at least three business days before closing.⁴

What Sellers Pay

The biggest line on a Kentucky seller’s settlement sheet is almost always the real estate commission. Historically that was 5% to 6% of the sale price covering both the listing agent and the buyer’s agent. In August 2024, the National Association of Realtors settlement changed how this works: offers of buyer-agent compensation can no longer be published on MLS listings, and buyer’s agents must sign a written agreement with their client before showing homes.⁵ Many Kentucky sellers still offer to cover the buyer’s agent fee because it broadens the pool of interested buyers, but it is now explicitly a negotiating point rather than a default.

In many Kentucky counties, the seller customarily buys an owner’s title insurance policy for the buyer. That policy, unlike the lender’s version, protects the buyer personally against ownership disputes, forged documents in the chain of title, or liens that turn up after closing.

The seller also pays for deed preparation, which in Kentucky must be done by a licensed attorney, and is responsible for delivering clear title. Any remaining mortgage balance, home equity line, outstanding lien, or unpaid property tax gets paid out of the sale proceeds at closing. Recording fees for the deed generally run around $46 to $50, though exact amounts vary by county clerk.

The Kentucky Real Estate Transfer Tax

Kentucky imposes a transfer tax of $0.50 per $500 of the property’s value, or $1 per $1,000.⁶ A $300,000 sale generates a $300 tax; a $200,000 sale generates $200. The county clerk collects it when the deed is presented for recording, and if it isn’t paid, the deed won’t be recorded.

By statute, the seller (the “grantor”) owes the tax.⁶ The purchase contract can shift this to the buyer, but only if it says so expressly. Silence in the contract leaves the tax on the seller.

When the Transfer Tax Doesn’t Apply

Kentucky law exempts several categories of transfers from the tax:⁷

Transfers between spouses, including transfers during a divorce.
Transfers between parent and child or grandparent and grandchild for nominal consideration (essentially gifts, not market-rate sales).
Foreclosure sales and deeds given in lieu of foreclosure.
Delinquent tax sales.
Corrective deeds that fix a prior recording.
Transfers to or from the federal government, the state, or any Kentucky city or county.
Business reorganizations, mergers, conversions, and transfers between a company and its owners at dissolution.
Deeds given solely as security for a debt.

The county clerk decides whether the exemption applies when the deed is presented, so the deed itself needs to reflect the exempt status.

How Property Taxes Get Split

Kentucky bases property tax liability on who owns the home on January 1. Whoever is on title that day is legally on the hook for the full year’s bill, even if the home sells in April or August.⁸

Buyers and sellers almost always prorate the bill at closing based on days of ownership. Sell on September 1 and you’ve owned the home for roughly 244 days, so you’d cover about two-thirds of the year’s tax; the buyer picks up the rest. Because the actual tax bill usually isn’t issued until late October or November, closings earlier in the year rely on an estimate, often the prior year’s figure. If the real bill comes in higher, the contract needs to say who absorbs the difference. The January 1 owner stays legally liable for the full amount unless the contract shifts it.⁸

Seller Concessions and Loan-Type Caps

Buyers often ask sellers to cover part or all of the buyer’s closing costs. A seller who agrees is effectively accepting a lower net price; the concession appears on the settlement statement and reduces the seller’s proceeds.⁹ What catches people out is that every major loan program caps how much the seller can contribute. Exceed the cap and the lender won’t approve the loan.

FHA loans: up to 6% of the sale price toward buyer closing costs, prepaids, and discount points.¹⁰
VA loans: no limit on seller credits toward actual closing costs, but seller concessions such as prepaid property taxes or paying off the buyer’s debts are capped at 4% of the home’s reasonable value.¹¹
USDA loans: up to 6% of the sale price.¹²
Conventional loans (Fannie Mae): 3% with less than 10% down, 6% with 10% to 25% down, 9% with more than 25% down. Investment properties are capped at 2% regardless of down payment.

On a $250,000 home with an FHA loan, the seller could cover up to $15,000 in buyer costs. On the same price with a conventional loan and 5% down, the ceiling drops to $7,500. For buyers, the loan type determines how much help is actually available; for sellers, these numbers decide whether a buyer’s concession request is even allowed under the buyer’s own program.

1
Consumer Financial Protection Bureau. How Much Does It Cost To Receive a Loan Estimate?
2
Consumer Financial Protection Bureau. What Is Lender’s Title Insurance?
3
National Association of REALTORS. Title Insurance: What Is Title Insurance and What Does It Cover?
4
Consumer Financial Protection Bureau. Closing Disclosure
5
National Association of REALTORS. NAR Reminds Members and Consumers of Real Estate Practice Changes
6
Justia Law. Kentucky Revised Statutes 142.050 – Real Estate Transfer Tax — Collection on Recording — Exemptions
7
Kentucky Legislative Research Commission. Kentucky Code 142.050 – Real Estate Transfer Tax — Collection on Recording — Exemptions
8
Kentucky Department of Revenue. The Property Tax Calendar
9
National Association of REALTORS. Seller Concessions: A Guide for REALTORS
10
U.S. Department of Housing and Urban Development. What Costs Can a Seller or Other Interested Party Pay on Behalf of the Borrower
11
U.S. Department of Veterans Affairs. VA Funding Fee and Loan Closing Costs
12
U.S. Department of Agriculture. HB-1-3555 – Chapter 6: Loan Purposes