| What Are Closing Costs? | ||
| The fees associated with buying or selling a home are referred to as closing costs. Some of these fees are automatically charged to the buyer or the seller, while others are either negotiable or dictated by local custom.
Buyer Closing Costs When purchasing a home, the buyer can expect to make a down payment (or not, with 100% financing), usually described as a percentage of the purchase price, and pay closing costs. Closing costs vary according to several factors, including the type of loan the buyer is applying for and the terms of the purchase agreement. Some of these costs may be required in advance (for example, credit report fee, appraisal and home inspection fees), while the majority are paid just prior to the close of escrow. Lenders are required to provide buyers with a good-faith estimate of the total costs (down payment and closing costs) that the buyer can expect to incur for the purchase of his/her home. Some of the typical buyer closing costs include, but are not limited to: *Loan Fees – credit report, appraisal, points, processing fees, etc.
When a buyer applies for a home loan, the lender is required to provide the buyer with a good-faith estimate of closing costs. The key word here is “estimate”. Most lenders only estimate the non-loan fees (escrow, title insurance, etc.), which may vary slightly from the actual fees charged for service. However, the good faith estimate should be within a few dollars (a few hundred dollars is considered within the range) of the actual closing costs. You can also ask your Realtor to run a good faith estimate for you, so that you can compare the typical costs we see in the industry with those the lender is quoting you. Seller Closing Costs When selling a home, the seller’s largest expense is typically the cost of satisfying the remaining mortgage balance. Other closing costs vary according to local custom and the terms of the purchase agreement. Some of these costs may be required in advance, while the majority are paid from the seller’s proceeds on the sale. Some of the typical seller closing costs include, but are not limited to: * Broker’s Commission Negotiating Who Pays Closing Costs Often times, closing costs are paid by each party to the transaction in accordance with local custom. However, buyers and sellers will frequently include closing costs in their negotiations; i.e., agree under the terms of the purchase contract who will pay what costs. For example, if a buyer is short on funds to make a down payment and pay closing costs, it is possible to get the seller to assist with some of these costs; in return for the buyer paying full asking price (and sometimes even over asking price), the seller may agree to pay a portion or all of the buyer’s closing costs. All agreements between the buyer and seller relating to the payment of closing costs must be in writing and clearly stated in the purchase contract. Prorations Certain costs are often prorated between the buyer and the seller at the close of escrow. Probably the most common proration is for property taxes. Because property taxes are only paid twice a year in Arizona, a distribution of those taxes must be made to each party for the time that each owns the property. For example, property taxes in Arizona are due the first of October (for the period January 1 through June 30) and the first of March (for the period July 1 through December 31). If you were to purchase a home (close escrow) on October 10th , the seller would be responsible for the taxes from July 1st (presuming taxes due for the period January 1 through June 30 have been paid by the seller on October 1st) through October 9th, and you as the buyer will be responsible for the taxes from the close of escrow (October 10th) forward. Other common prorations include homeowner’s association fees and some utility fees (for example, sewer fees that may be paid on a quarterly basis). For additional information on closing costs and how prorations work, please feel free to contact ME today. I am here to assist you in anyway I can. | ||
