Closing costs are the expenses that buyers and sellers incur to finalize a transaction. Costs average between 2% and 5% of the mortgage amount.
Closing day is one of the most eagerly anticipated days in the real estate process for both buyers and sellers. However, it is also one of the most expensive due to the large number of charges deferred until closing, otherwise known as closing costs. Find out which closing costs you can expect to see on your side of the closing table and what they cover.
Closing costs are the collection of fees, commissions, taxes, and other charges that are involved in the home sale or purchase process. They encompass payments to the various professionals involved in the transaction as well as charges that have to be paid upfront, like your initial homeowners insurance payment or HOA fees.
In addition, there are fees associated with some of the legal aspects of the home sale or purchase, such as transferring and recording the deed, conducting a title search, and obtaining a credit report.
Both buyers and sellers pay closing costs. In the event that a seller is receiving money from the equity in his or her home, closing costs will be taken out of those funds before disbursement. For buyers, closing costs will be paid along with the remainder of his or her down payment, with a credit given for previous payments like the Earnest Money Deposit (EMD) or in the event of seller help.
Closing costs for the buyer include some or all of the following:
● Notary fees
● Wire transfer fees
● State, county, or city transfer taxes
● Home Insurance
● Lender fees paid in conjunction with obtaining the mortgage
● Insurance premiums
● Property taxes
● Mortgage Insurance Premiums (MIP), if required
● Prepaid interest or points
Closing costs for the seller include some or all of the following:
● Agent commissions for both buyers and sellers (usually approximately 6% of the home’s purchase price)
● Transfer taxes
● Owner’s title insurance
● Escrow fees
● Prorated property taxes for the portion of the year prior to closing
● Prorated Homeowners Association (HOA) fees
● Seller credits toward settlement as agreed to in the purchase contract
● Attorney’s fees
For buyers, closing costs in California are generally around 2-3% of the purchase price of the property. For sellers, a range of 5-9% is more common, in order to account for the broker commissions which are paid by the seller.
Most of the room for negotiating closing costs is on the buyer side. This is because the bulk of the seller’s closing costs goes to paying the real estate agents or brokers involved in the transaction.
For buyers, most of the savings on closing costs will come in the form of negotiating a better deal on your mortgage, including lender fees and mortgage incentives and rebates. In addition, there may be valuable grants and discount programs that pay some or all of your closing costs, depending on various factors like profession, income, first-time homebuyer status, or incentive programs for specific neighborhoods or metropolitan areas.
Talk to both your real estate agent and your lender about special programs you may qualify for before you start your home search.
Junk fees or garbage fees are tacked on to many lender fees and paid by unsuspecting buyers. Ask your lender about these and do not be afraid to negotiate them down or ask for them to be eliminated altogether. You may see junk fees charged under the following line items:
● Application fees
● Underwriting fees
● Rate lock fee
● Processing fee
● Broker rebate
Depending on your closing and settlement provider, funds may be disbursed to the seller on the day of the closing or up to two days later. While a traditional paper closing process often slows down disbursement, a secure process like the one pioneered by Endpoint, can significantly streamline and speed up the disbursement of seller funds.
Experience a faster, more seamless, and more reliable closing process with Endpoint. Endpoint’s end-to-end closing combines the power of advanced technology with the reliability and expertise of their parent company, First American.
Learn more about Endpoint and find out how you can enjoy a higher degree of satisfaction and peace of mind in your closing process.
Earnest money shows the seller that you are in an agreement to buy their house. Find out all about earnest money and how to ensure you don't lose it.Read More