KNOWING YOUR CLOSING COSTS
The selling price of a home isn’t the bottom line in purchasing transactions. Closing costs also play a part in every real estate transaction, and add to the costs for both buyer and seller. Understanding what these closing costs are and having a close estimate of how much they will be is an important part of the decision-making for every home sale or purchase. Some costs are paid by the seller, some by the buyer, and some are shared by both in a typical transaction. Who pays what costs is part of the negotiation process that leads to a Purchase Agreement.
Early in the title process, you’ll have an estimate of these closing costs, but the amount may change as the title process proceeds. Near the end of the process, however, all parties will receive a Closing Statement, often referred to as a HUD-1 form. This form, required by federal law, details all the amounts due at closing. You should expect to have a very accurate statement of closing costs about 7 days prior to closing. Minor changes in amounts may occur, even after that time, and a final list of costs will be presented at closing.
Here’s a list of some of the items that add to closing costs:
If either party retains a real estate attorney, that party will be responsible for the fees for attorney services. Many simple residential real estate transactions do not necessarily require the services of an attorney.
TITLE SERVICES COSTS
There are a number of costs connected to title services. These may be paid by either party, or shared by both parties. Who pays what fees will be negotiated and become part of the Purchase Agreement. Costs include Title Insurance, Closing fees, Title Examination fees, Plat Drawing fees, Name Search fees, Document Handling fees, Recording fees, Wire Transfer fees, and others. You can calculate these fees, as they are most often distributed between buyer and seller by using the online Calculators on this web site.
These may be required by some commercial lenders, to clearly define the size and location of the property and other issues.
Paid by the seller, these fees are based on the selling price of the property, and are negotiated between the seller and broker. These fees are paid to the real estate broker at closing time from the net proceeds of the sale.
MORTGAGE APPLICATION FEES
Paid by the buyer to the lender or lenders in the transaction. These may be paid at closing, rolled into the mortgage, or paid in advance to the lender.
Usually paid by the buyer, appraisals are required by the mortgage lender and very helpful to the buyer in establishing the property’s value.
There will be one or more property inspections involved in the transaction in almost all cases. Most often, these are paid for by the buyer, but are sometimes negotiated.
HOME WARRANTY FEES
These valuable warranties may be paid for by any party in the transaction, after negotiation. They are often offered by the seller or broker as a marketing strategy, but can be purchased by the buyer as well. Property InsuranceRequired by all lenders and paid by the buyer, this is usually paid in advance prior to closing, but may be part of the closing costs.
PRO-RATA PROPERTY TAXES
Divided between buyer and seller, the amount of these taxes paid by each will depend on the date of the sale. They may also be part of the negotiations.
PRO-RATA HOMEOWNER ASSOCIATION DUES
Normally, these are divided between buyer and seller, based on the date of the transfer of title, but may be negotiated.
PRO-RATA MORTGAGE INTEREST
Mortgages are normally paid on a particular day of the month. If the transfer of title occurs on another date, the buyer may have to pay a partial month’s interest at Closing.
In some cases, other costs may be part of the closing. These vary from location to location or are negotiated by buyer and seller and become part of the costs during closing.