The
total list of charges/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 negotiable.
Buyer
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)
- Prepaid
interest
- Inspection
fees
- Appraisal
- Mortgage
insurance
- Hazard
insurance
- 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 paying off 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 (pay
off) the
loan. Then, along with any other fees, the original loan
will be paid for at the closing, the seller
receives any proceeds (amount left after paying incurred
transaction debts) from the sale. Other seller
closing costs may include:
- Broker's
commission
- Transfer
taxes
- Documentary
Stamps on the Deed
- Title
insurance
- Property
taxes (prorated)
Negotiating
Closing Costs
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, or appliances the seller may agree to pay for
a home protection warranty.
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 clearly 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 (county, city, school
district, etc.) 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.
