After your offer has been accepted there are a number of details that
still need to be completed. There will probably be a whole house inspection of the
property home by an inspector, who will determine the condition and integrity of the
property. Your mortgage company may choose to send out an appraiser who will assure the
lender of your property's worth. The title company will have to warranty that there are no
liens or existing encumbrances which would inhibit a transfer of title. Either you or the
seller may chose to be represented by an attorney.
The 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:
Transfer taxes
Documentary Stamps on the Deed
Title insurance
Property taxes (prorated)
Broker's commission
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. |