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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