Understanding Closing Costs

What are Closing Costs?

Closing costs refer to the costs associated with purchasing, selling, or refinancing real estate. According to InvestorWords.com, Closing Costs are defined as “fees and expenses, over and above the price of the property, incurred by the buyer and/or the seller in the property ownership transfer.”  Examples include:  loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs. Closing costs are also known as settlement costs, and are typically 2% – 6% of the mortgage amount.

Closing costs are a large expense associated with purchasing any real estate and are paid at closing.  The closing is the final step in executing a real estate transaction and when the ownership of a piece of real estate is transferred to the new owner. In real estate sales, who pays what is often dictated by local custom. In a mortgage refinance, costs may be paid by the lender or borrower.

Your closing costs should not be a surprise at the closing table.  As required by TILA-RESPA, these costs are disclosed to the Purchaser by the lender on the Loan Estimate during the loan application process, as well as to the Purchaser and Seller on the Closing Disclosures prior to closing.

What You Really Need to Know

Closing costs can spoil the Purchaser’s excitement at closing if they don’t have a clear understanding of what the closing costs are or why they’re required to pay them. When a Purchaser understands what the individual fees are and knows why each of them are necessary, closing can again become an exciting event. Below is a breakdown of the costs paid by the Purchaser, the Seller and those costs that are typically shared.  Keep in mind that any of the Purchaser’s costs are negotiable, and can be paid by the Seller if the Purchaser and Seller both agree to it.  This agreement must be in writing.

A good resource for understanding each of these costs can be found at the following link:  http://www.goodmortgage.com/Learn/Basics/Closing_Costs.html.

PURCHASER COSTS
Loan Closing Costs: Pre-Paid Items:
Origination Fee Interest to the beginning of the next month
Appraisal Fee Up-front mortgage insurance
Credit Report VA funding fee
Final Inspection Fee USDA Rural Development fee
Processing Fee Escrows:
Tax Service Fee Hazard Insurance
Flood Certification Mortgage Insurance
Discount Points Property Taxes
Title Charges: Recording Charges:
Settlement Fee Recording fees for deed and mortgage
Title Search Fee Deed Tax
Express Fees Mortgage Tax
Courier Fees Recording and handling fees
Wire Fees Miscellaneous Fees:
Termite Letter
Transfer Fees
Follow-up Inspection Fee
SELLER COSTS
Real Estate Commissions
Deed Preparation Fee
Express Fee
Courier fee for pay-off of existing mortgage
Record of Release
“Corrections” required according to the termite letter
Tax Proration
Costs of curing defects in the title
SPLIT COSTS
Title Binder
Title Insurance Premium
Simultaneous Issue Fee

“No representation is made that the quality of legal services to be performed is greater than the quality of legal services performed by other lawyers.”

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