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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.
Proration's
At the closing, certain costs are often prorated (or distributed)
between buyer and seller. The most common proration's 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.
For additional information about closing costs and preparing to close
click HERE!
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