A Real Estate transaction does not have to be difficult. One of the more stressful aspects of becoming a homeowner is the paperwork you face at Closing. Having a full time, experienced, real estate agent from our team by your side not only makes the process much easier, but we can also ensure that you do not get hit with unexpected closing costs.
Closing Costs are the fee’s that both buyer/seller have to pay to legally transfer the ownership of real property. Both buyer and seller are usually provided with a list of these fee’s with the estimated dollar amount in the Escrow process. When both buyer and seller agree on a purchase price and the terms for a property sale, the purchase documents are taken to a Escrow company, who acts as an impartial third party to handle the transfer of ownership. Escrow companies ensure that all the terms of the sale are complete before the property and money exchange hands.
Typically, closing costs cover the services provided by attorneys, appraisers, inspectors, realtors, and other itemized taxes or products needed to make the sale legal. As a buyer, you will also have fees charged by your lender to set up your home loan. The start-up fees due at closing are in addition to your down payment, so make sure you know what they’re going to be as part of your loan application process.
It’s a good idea to get familiar with the basic fees early on. A cost comparison of lender’s fees is a good way to shop for a home loan. Ask each prospective lender to give you a written Good Faith Estimate that will spell out exactly what you can expect to pay on closing day.
Costs associated with getting a loan:
- Appraisal Fee — Fee for the property appraisal that is used as the basis of the loan.
- Credit Report Fee — Lenders look at your credit report to see your FICO score, and the details of how well you handle credit. Many lenders will waive this fee.
- Document Preparation — Covers the cost of preparing the legal documents required for closing the sale, including any special documents that may be necessary and agreed upon by the buyer and seller.
- Loan Discount Points — Discount points refer to a fee you pay in order to purchase a lower interest rate. Generally one point equals one percent of interest. Sometimes, points are lumped together with the loan origination fee.
- Loan Origination Fee — Covers the administrative costs of processing the loan.
- Prepaid Interest — Buyers are required to pay the interest that accrues on the loan from the date of settlement to the first monthly payment. This amount is added as a closing cost.
Closing Costs can also consists of: Attorney Fees, Escrow Fees (40% Buyers/60% Sellers), Flood Certification, HOA Dues, Maintenance Fees, Mortgage Insurance, Postage/Courier, Survey, Taxes, Title Insurance, Pre-Paid Items, Processing, Property Hazard Insurance, and Underwriting.
Negotiating Closing Costs:
In addition to the sales price, buyers and sellers frequently include closing costs in their negotiations. This can be for pretty much for any fee involved, as everything is Real Estate is negotiable.
Example: A buyer can request a seller to pay a point on their mortgage and buy down their interest rate so that their monthly figure is less. This often makes great sense because the Buyer can pay a bit more in the purchase price, rolling it into the mortgage, but get a credit back from the seller to use toward the point, saving much more in interest in the long run.
Likewise, a buyer may want to save on other up-front expenditures at closing, and may agree to pay the seller’s full asking price of the property in return for the seller paying all the allowable closing costs for the buyer.
There are many ways to negotiate closing costs, just ask your Real Estate professional if the situation fits.
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.
If a house is sold in June, the sellers will have already 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.
Most real estate sales include other fees which varies on the type of loan you obtain, the land tenure or the property, or how the contract is negotiated. Read your Purchase Contract thoroughly, talk with your lender, and ask your real estate agent to answer any questions that you may have. You can also contact us at any time if you have any questions 🙂