Closing Costs Explained For The Buyer And Seller

Fees associated with buying and selling a home documented in a sales contract are called closing costs. They are split between the buyer and the seller and may often involve negotiation. Buyers apply for a loan and receive a "good faith estimate" that may not include all of the closing costs.

Buyer's closing costs include: the actual down payment, loan fees, points, appreciation and credit report, along with any pre-paid interest, inspection fees, appraisal, mortgage insurance, title insurance, and documentary stamps or note. Escrow fees, homeowners insurance, and legal fees can be included. These fees vary depending on the lender and the details of the sales agreement.

It is advisable to carefully review the estimated costs presented by the lender. If there are any questions before the actual closing, have the loan or title company officer clarify anything before making a final decision. As Americans borrow more than $110 billion a year to buy homes, these added costs and charges can add significantly to the purchase price of the home.

Sellers' costs as part of the closing include: the broker's commission, tax transfers, documentary stamp on deeds, and insurance and property taxes. Before the sale closes, the escrow officer will verify with the lender to ensure sure the existing balance for the loan has been paid. If the proceeds from the loan do not completely pay for the seller will need to pay for the remaining balance. Any additional deductions for the sale of the home (including buyer credits and concessions) are subtracted before the seller receives their share of the sale proceeds.

Negotiations for deductions can occur with minor or major costs. Property taxes are often prorated. They are usually paid at the end of the tax year. If the buyer has questions regarding some structural aspect of the home, including the plumbing, windows or electrical work, the buyer may request the owner to credit for the repairs. At this stage, even the price of the house could even become negotiable. A buyer could offer to pay the full asking price or more for a house in exchange for the owner covering the closing costs. The seller may offer to “carry paper” or finance a portion of the sale for the buyer to ensure that the sale goes through. There is really no restriction for what can be covered by the buyer or seller, just as long as both parties involved are happy with the eventual outcome and the terms of the deal is written down.

It is a good idea to carefully review the good faith estimate well in advance of your closing date. You'll be better prepared to protect yourself from padded, "inflated" or "abusive" costs. If questions are raised during the earliest stage of escrow, you'll have ample opportunity to speak with the preparer about your concerns and have them explained.

Make sure that you are aware of basic closing terms. Loan origination fees are fees that cover the lender's processing fees for the loan, a percentage of the loan that varies from lender to lender. Points. A point is a one time charge for a lower interest rate. A point usually costs one percent of the amount loaned. A buyer can save money over the life of the loan by paying down one or more of these points, and the points may be tax-deductible.

Property Appraisal: A property appraisal is done for the lender to determine fair market value of the home. Inspection fees: are charged for homes under construction. A lender requires routine inspection for construction and release of funds as work progresses and concludes. Buyers are also responsible for prepaid interest that covers the mortgage from the first day of the loan until the due date of the first monthly payment. Hazard and flood insurance are paid a year in advance to cover the home and lender from natural disaster: fire, loss, windstorm and flooding.

Miscellaneous mortgage fees can include more inspections and an assumption costs. Inspection fees are generally handled before the closing date and can include an inspection of the home, radon tests, and pest or other specialized inspection fees. Assumption costs are for transferring the owner's mortgage into the hands of the new buyer. This is where reviewing closing costs are important because they can vary from state to state. Charges for home warranties are common. An attorney can handle a title search, apply for title insurance for you and a lender and complete the closing in some states. In other states "specialty companies" handle title work and closings are completed elsewhere. As this process can be cumbersome, it is important that you work with your REALTOR®, title officer and/or legal professional to handle ensure that all aspects of the closing are handled with the utmost of care.

Current technology has allowed the closing process to become easier, quicker. There are a plethora of fees a lender may charge depending on your location and the technology employed in the process. Notary and record fees would apply to have documents notarized and filed with public records. Overnight fees would result to send or receive documents and transfer fees for wiring incoming and outgoing funds.

Regardless of where and when you are buying a home you're closing costs will take a significant jump before they're finalized. The awareness you've gained from familiarizing yourself with the process and establishing a relationship with your lending officer, REALTOR®, and closing agent will better prepare you for a predictable rise in closing costs and enough knowledge to point out inflated costs or at least ask questions to determine exactly where you stand.