“Closing costs” are various fees charged by those involved with the transfer of property from the seller to the buyer. Some fees are paid by the seller; some are paid by the buyer. Who pays what is always negotiable.
Closing costs are fees paid to transfer property ownership. These fees are for items such as: title policies, recording fees, inspections, courier charges, any fees that lenders charge. The amount of these fees depend largely upon where you live.
Closing costs can range from one to eight percent of the home’s cost, though they are usually about three to five percent of the total purchase price.
Do not ignore closing costs as part of the cost to buy or sell a home.
What the Seller Typically Pays
- Real estate commission – six percent of the selling price in most areas
- Loan Payoff – to your current lender.
- Repairs – found by buyers home inspection
- Home Warranty – A service contract that covers the repair or replacement of some of the most frequently occurring breakdowns of certain home system components, i.e. heating and air conditioner units, water heater, and appliances. The service contract is good for one year and today’s buyers expect this to be provided by the seller.
- Transfer Taxes – vary by state, even county
- Attorney Fees
- Closing Costs – negotiated on behalf of buyer
- Other Fees – negotiated during the transaction
- Then there are recording fees, document prep fees, courier fees, etc.
What the Buyer Typically Pays
- All fees to do with obtaining the loan
- Appraisal – to confirm purchase price does not exceed market value
- Home inspection
- Pest inspection—especially in most Southern states because, in humid climates, there are many crawly things that eat and destroy homes (termites, powder post beetles, flying ants, etc.).
- Homeowners insurance—typically prepaid for one year at closing.
- Mortgage insurance—if they borrow more than 80 percent of the value of the property.
- Survey—often not required, but a wise decision because it does make sure property boundaries and easements are accurate.
- Property taxes—from the day of closing to December 31.
- Interest—mortgage interest paid from date of closing through the last day of the month before the 1st payment is due.
- Attorney fees
- Title insurance
- Escrow fees—if they escrow any taxes or insurance.
- Loan discount points—if they paid for a lower interest rate.
- Fee for recording the documents.
- Transfer taxes—if there are any. Many states charge a tax to transfer property to a new owner. For example, $1 per $1,000 of selling price. Check with county, not state, to find out your rates.
Payment of these fees will be itemized for both buyer and seller at closing on a document called the HUD-1 Settlement Statement. A mortgage loan originator or real estate agent can tell you which fees are customarily paid for by the buyer and which by the seller in your area.
Closing costs are one of the things that are negotiable in the purchase contract. In today’s buyer’s market, most of the costs are paid by the seller.
What can you add?