Closing Costs
Closing Costs are a bundle of fees associated with the buying or selling of a property. Certain fees are automatically assigned to
either the buyer or seller; other costs are either negotiable or dictated by local custom.
Buyer Closing Costs
When a buyer applies for a loan, lenders are required to provide them with GOOD FAITH ESTIMATE of their closing costs.
The fees vary according to several factors, including the type of loan they applied for and the terms of the purchase
agreement. Likewise, some of the closing costs, especially those associated with the loan application, are actually paid
in advance. Some typical buyer closing costs include:
- The down payment
- Loan Fees (points, application fee, credit report)
- Prepaid Interest
- Inspection Fees
- Appraisal
- Mortgage insurance (typically 1 years premium plus an escrow of 2 months)
- Hazard insurance (typically 1 years premium plus an escrow of 2 months)
- Title Insurance
- Documentary stamps on the note
Seller Closing Costs
If the seller has not yet paid for the house in full, the seller's most important closing cost is satisfying the remaining balance of
their loan. Before the date of closing, the escrow officer will contact the seller's lender to verify the amount needed to pay
off the loan in full. Then, along with any other fees, the original loan will be paid for at the closing before the seller received
any proceeds from the sale. Other seller closing costs can include:
- Broker's commission
- Transfer taxes
- Documentary Stamps on the Deed
- Title Insurance
- Property Taxes (pro-rated)
Negotiating Closing Costs
In addition to the sales price, buyers and sellers frequently include the closing cost in their negotiations. This can be for both
major and minor fees. For example, if a buyer is particularly nervous about the condition of teh plumbing, the seller may agree
to pay for the house inspection.
Likewise, a buyer may want to save on up-front expenditures, and so agree to pay the seller's full asking price in return for
the seller paying all the allowable closing costs. There's no right or wrong way to negotiate closing costs; just be sure all
the terms are written on the purchase agreement.
Prorations
At the closing, certain costs are often prorated (or distributed) between buyer and seller. The most common prorations
are for property taxes. This is because property taxes are typical paid at the end of the year for which they were assessed.
Thus, if a house is sold in June, the sellers will have lived in the house for half the year, but the bill for the taxes won't come due
until the following year! To make this situation more equitable, the taxes are prorated. in this example, the sellers will
credit the buyers for half the taxes at closing.