Closing Costs

There are numerous fees associated with the buying or selling of a home – these fees 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 closing costs
When a buyer applies for a loan, lenders are required to provide them with a good-faith estimate of their closing costs. This will be given to you in advance of your closing.  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 home is not owned out right by the seller then 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 commission

       Transfer taxes

       Documentary Stamps on the Deed

       Title insurance

       Property taxes (prorated)

Prorations
At the closing, certain costs are often prorated. The most common of these are for property taxes. This is because property taxes are typically paid at the end of the year for which they were assessed.

Therefore, 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.

 

Hopefully this has answered a few of your questions about the closing process.

 

This entry was posted on Sunday, July 13th, 2008 @ 7:50 pm on the category Buying A Home. You can follow any responses to this entry through the RSS 2.0 You can leave a response, or trackback from your own site.