Summary
When purchasing a home, budgeting involves more than just saving for your down payment. Buyers and sellers alike must account for various fees, collectively known as closing costs. These costs cover services that ensure a smooth property transaction and vary based on the property and agreement terms.
- What is Closing Costs?
- How Much Does Closing Costs
- Is the Buyer or Seller Who Pays Closing Costs
- When is Closing Costs Due?
- Closing Costs for Buyers
- List of the Recurring Cost
- What are the Closing Costs for Cash Buyers?
- Here is a List of the Most Common Closing Costs for Sellers
- How to Estimate Closing Costs
- Conclusion
What is Closing Costs?
Closing costs refer to the fees and expenses associated with completing a real estate transaction. These include payments to lenders, title companies, inspectors, and appraisers. While the buyer typically shoulders most of these costs, the seller also has obligations. Understanding what is closing costs entail is essential for a seamless home-buying experience.
How Much Does Closing Costs
Closing costs for buyers often range from 2% to 5% of the purchase price of the home. Usually, seller costs are higher. The commission you have negotiated and agreed to with your agent to sell your house is included in the standard closing expenses. There is also an additional percentage of the sale (about 2 to 4%), which is paid in transfer taxes, property taxes, attorney fees, and other real estate fees. Your closing expenses are determined by several factors. For purchasers, it is contingent upon your loan program, loan seizure, and specific lender policies. It all depends on the concessions and agent commissions you have negotiated for sellers.
Is the Buyer or Seller Who Pays Closing Costs
Closing expenses are paid by both the buyer and the seller, although you should expect to spend more as the seller. Closing costs, which are mostly lender-related fees, often amount to 2% to 5% of the purchase price as a buyer. In the past, closing costs for sellers have often been between 8% and 10% of the home’s sale price, although they can vary significantly based on several variables, including taxes and agent commissions. The seller’s fees and taxes usually amount to an extra 2% to 4% of the sale. You rarely need to bring cash to closing because the seller’s closing costs are subtracted from the home’s sale proceeds at closing.
When is Closing Costs Due?
The day of closing, when the buyer receives the property’s title from the seller, is when the majority of closing expenses are due. Usually, the buyer brings a cashier’s check to the closing appointment, or money is wired to the receiving parties at closing. However, some closing expenses, such as land surveys or inspection certificates, must be paid for in advance of closing day. Payment is made at the time services are rendered, and home inspections are often finished within a week of your offer being accepted. Not every contract needs to be inspected. The buyer typically has the option to include an inspection condition. Although the cost may occasionally be split with the seller, you will also be responsible for paying for any land surveys or flood zone certifications at the time of service.
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Closing Costs for Buyers
Closing costs for buyers are the combination of one-time fees and the initial installments of recurring costs you will have to pay alongside your mortgage every month. An example of this recurring cost is your homeowner’s insurance premium. You will have to likely pay your first year’s premium at closing. In future years, it will be paid either out of pocket or via an account you add funds to every month.
List of the Recurring Cost
- Homeowner’s Insurance.
- Property Tax and tax serving fees.
- Mortgage insurance for a down payment worth less than 20% of the purchase price.
- Flood Certification fees.
What are the Closing Costs for Cash Buyers?
Cash buyers are still required to pay for things like notary fees, property taxes, recording fees, and other local, count, and state fees. Unlike a buyer who is using financing, cash buyers won’t have to pay any mortgage-related fees. However, the majority of cash buyers still choose to cover costs for owner’s title insurance, inspections, and appraisals.
Here is a List of the Most Common Closing Costs for Sellers
- Agent commissions
- Transfer Tax
- Title Insurance
- Escrow and Closing fees
- Prorated Property Tax
- HOA Fees
- Credits towards closing costs
- Attorney’s fees
How to Estimate Closing Costs
The best way to estimate your closing costs is to review the Loan Estimate provided to you by the lender during the loan application process. If you are not ready to apply for a loan but want to get a feel for how much can you afford. You can also simply multiply a home sale’s price by 2% to get your minimum closing cost amount or 5% to get the high end of your potential closing costs. When you are a first-time home buyer it can be particularly challenging for the first-time buyer to have enough cash to cover both your down payment and closing costs, since you haven’t proceeded from a home sale to use.
Conclusion
Closing costs are an essential part of the home buying process that every first-time buyer should understand and plan for. Whether you’re a buyer calculating how much closing costs will impact your budget or a seller understanding who pays closing costs, being informed ensures a smooth and transparent process. By familiarizing yourself with and exploring ways to reduce the fees, you can confidently navigate this final step of the home-buying process.
