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.
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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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)
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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:
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Broker's commission
-
Transfer taxes
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Documentary Stamps on the Deed
-
Title insurance
-
Property taxes (prorated)
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Negotiating Closing Costs
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