Everyone hears about buyer and seller closings costs in Real Estate, but many folks just aren't sure what the money is used for, and want to make sure they get a good deal.
Below are some very common items that a lender friend of mine emailed me
PROPERTY TAXES. Based on the month you close, property taxes will be pro-rated between you and the seller.
HOMEOWNER’S INSURANCE. You will be required to pay an entire year’s homeowner’s insurance (hazard insurance) premium at closing.
PREPAID INTEREST. Depending on the day of the month your loan closes, this charge may vary from a full month’s interest to just a few days’ interest.
PRIVATE MORTGAGE INSURANCE (PMI). Depending on the amount of your down payment, you may be required to put a certain amount for PMI into an escrow account.
TITLE INSURANCE FEES. These fees cover both the buyer’s title policy and the lender’s title policy. The title company may also charge fees for a title search, settlement/closing fees, recording fees, notary fees, document preparation, and title examination.
ADMINISTRATIVE, LOAN PROCESSING, AND UNDERWRITING FEES. These fees offset the cost of processing your loan request, obtaining all the necessary documentation, and evaluating your loan application package.
Other costs that you should be familiar with but do not apply in all cases:
LOAN ORIGINATION FEE. This fee covers the lender’s administrative costs in establishing the new loan. It is generally expressed as a percentage of the loan amount.
LOAN DISCOUNT. Often called “points,” a loan discount is a charge used to allow a lower interest rate than the current market rate. One point is equal to 1% of the loan amount.
HOA fees, transfer and/or prepayment
Too much to digest right? Yep, understood. Talk to your lender before looking at homes, some buyers will want to ask the seller to pay the buyer's closing costs, the lender can tell you how much to ask for. Unspent closing costs from the other side is money down the drain for the buyer. No refunds!
If the buyer is paying cash for the home, closing costs will be MUCH less than a buyer with a loan, as much of the costs are loan fees.
Closing costs for a buyer with a loan could easily be 3-4% of the sales price! If you want the seller to help you with YOUR fees, ask IN WRITING with the initial offer!
Questions/comments?
Brian Petersheim- Homesmart Success 602.206.9644