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.
