Rest assured, you will probably be prepared when closing time arrives for any costs you will be facing. But let’s back up a bit and take a look at what you need to know about closing costs as you enter into the home buying process.
Surprise number one: while buyers will end up with more expenses, they still usually pay less than sellers.
Both buyers and sellers are faced with costs at a closing, and usually it’s the buyer who is facing the lion’s share of the line-item expenses, especially since most buyers are securing a loan to buy the house; many closing expenses are loan related.
Every buyer should receive a “Truth in Lending” statement early in the sale process, which spells out all the approximate costs the buyer can expect so there are no surprises at closing. Some buyers will use the “Truth in Lending” statement to shop around for different lenders, better interest rates and costs.
In addition to the costs associated with securing a loan or buying a home, other expenses like property taxes and homeowners association feesare usually pro-rated and paid at the time of closing. For example, if your home purchase is close to the end of a property tax period, you may be expected to pay the balance of the tax at closing. The same goes for any pre-paid loan interest if you close toward the end of the month; your lender may ask for the first month’s payment upfront.
Some of the costs buyers who are securing a loan for their home purchase can expect to see at closing include:
- Appraisal fee
- Bank processing fee
- Credit report fee
- Flood certification fee
- Notary fee
- Origination fee
- Pre-paid interest
- Pre-paid insurance
- Recording fee
- Tax servicing fee
- Title insurance
Be sure to go review all fees line by line with your mortgage professional to understand exactly what they are and how they apply to your loan.
Seller pays realtor’s commission
Although sellers always have fewer line item expenses to deal with at closing, the seller generally bears a larger chunk of the fees in the real estate commission.
The realtor’s commission is based on a percentage of the total sale price, so it tends to be the largest fee involved in the home’s sale. Sellers may have to pay the balance on their unpaid property taxes as well.
Open to negotiation
Fees and charges can be always be negotiated during the real estate transaction. For buyers, coming up with an extra 1 to 2 percent in closing costs can be very challenging, and might be grounds to renegotiate that $5,000 reduction in the purchase price. A $5,000 credit toward closing costs might be a much better option for the buyer, especially since the price reduction won’t amount to much more than a few dollars each month over the length of the home loan. Saving $5,000 at the closing can be considered money right back in the buyer’s pocket.