Articles about Homebuying
Closing Costs:
The fees associated with the buying or selling of
a home are called closing costs. Certain fees are
automatically assigned to either the buyer or the
seller; other costs are either negotiable or dictated
by local custom.
Buyer's closing costs:
When a buyer applies for a loan, lenders are required
to provide them with a 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,
appraisal)
- Prepaid interest (a pro-rated amount from closing
date to monthly payment date)
- Inspection fees
- Mortgage insurance
- Hazard insurance (homeowner's insurance policy
premium)
- Title insurance
- Prorated property taxes, water, or sewer fees
- Documentary stamps on the note and recorder's
fees
Seller's 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 close out the
loan. Then, along with any other fees, the original
loan will be paid for at the closing before the seller
receives any proceeds from the sale.
Other seller closing costs can include:
- Broker's commissions
- Transfer taxes
- Documentary stamps on the Deed
- Property taxes, water, and sewer fees (prorated)
- Negotiated closing costs
In General:
In addition to the sales price, buyers and sellers
frequently include closing costs in their negotiations.
This can be for both major and minor fees. For example,
if a buyer is particularly nervous about the condition
of the plumbing, the seller may agree to pay for the
house inspection.
Likewise, a buyer may want to save on up-front expenditures,
and so agrees 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
down 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 typically 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. |
