The
bundle of 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 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 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)
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, the seller may agree
to pay for the house inspection.
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 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.
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