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Closing Costs: What you need
to know.
Closing Costs:
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.
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