What to Know About Closing Costs
Buying or selling a home is an enormous personal and financial commitment. While most people focus their attention on the purchase price of the home and mortgage costs, you must also consider other fees and costs. Whether you’re a first-time home buyer or a seasoned real estate veteran, closing costs are one of the most significant expenses you should consider. There are several different types of closing costs, which could cost a buyer or seller thousands of dollars.
Real Estate Taxes
Property taxes are a significant closing cost. Depending on where you live, real estate taxes could be paid in arrears, or a year late. Because of this, the seller of the home will have to credit the buyer a portion of the year’s property taxes at the closing of the sale. Depending on the time of the year, this could be a considerable amount of money paid to the buyer at closing.
Home buyers will also incur a lot of closing costs if they take out a mortgage. There are several different types of mortgage-related closing costs to consider, including appraisals, property inspection reports, mortgage points, and loan origination fees. These are typically at least $1,000, but could easily be much more than that depending on the structure of the loan.
Transfer taxes are fees that are paid to the state, county, or city at the closing of the sale. These charges constitute around 1% of the selling price and could be paid by either the buyer or the seller at the close, depending on the area’s regulations.
Real Estate Commissions
When buying or selling a home, most people choose to be represented by a realtor. Since real estate agents are paid entirely on commission, this can equal a big fee due at the closing of the sale. In most cases, the seller of the property will be required to pay for the commission for both the buyer and seller real estate agent. In most cases, these fees equal up to 5 to 7% of the total sales price.
Request a Statement
Since closing costs are expensive, it is important that you have a full understanding of what they will be before the closing date. Both the buyer and the seller of the home should be able to get an estimated closing statement a couple of weeks before the closing date. This report will help to eliminate the risk of any cost surprises that can show up before closing.
Negotiating Closing Costs
While closing costs can be expensive, there are a lot of different ways to settle them. Homebuyers can negotiate either directly with the seller or with their lender. It is very common for a homebuyer to request a certain dollar or percentage credit from the seller to cover a portion of closing costs. They may also be able to negotiate reduced fees with their lender.
A seller of the home could potentially negotiate closing costs as well. One of the best ways to do this would be to negotiate a lower real estate commission with a realtor. If the home has a high sales price, a broker may be willing to offer a lower fee to win the deal.