What are closing costs? Who pays them buyer or seller, and are they negotiable

By
Real Estate Agent with Judah Realty Group

What are closing costs? Who pays them buyer or seller, and are they negotiable? I get asked this question very often by first time homebuyers. Listed below are some typical closing costs you may incur as part of your loan transaction.  When you apply for a loan application you will receive a Good Faith Estimate of closing costs and settlement charges, and a booklet that will explain these costs by your mortgage lender.

closing costs for first time buyers

Appraisal Fee:

This is a one-time fee that pays for an appraisal.  The appraisal is made by an independent fee appraiser.

Credit Report Fee:

A one-time fee that covers the cost of the credit report.

Document Preparation Fee:

There may be a separate fee that covers the preparation of the final legal papers.

Loan Discount:

A one-time fee used to adjust the yield on the loan to what market conditions demand.  It is often called "points."

Loan Origination Fee:

The lender's administrative costs in processing the loan are covered by this fee.

Miscellaneous Title Charges:

The title company may charge fees for a title search, title examination, recording fees, and notary fees.

HOA Dues (Homeowner Association Dues)

Your lender will normally collect 2 (two) months of HOA dues for reserves in case you miss one. Plus, its also so that they can open an account with the management company.

PMI Premium:

You might be required to pay an up-front fee for mortgage insurance depending upon the amount of your down-payment.  Lenders may also require monies be placed into a reserve account held by them.

Prepaid Interest:

Depending upon the time of the month your loan closes, this

per diem charge may vary from a full month's interest to that of a few days.  If your loan closes at the end of the month you will have to pay interest only for a day or so.

Taxes and Hazard Insurance:

You may be required to reimburse the seller for property taxes depending upon the month in which you close.  You will also need to pay a year's hazard insurance premium up front.  Also, you might be required to put a certain amount for taxes and insurance into a special reserve account held by the lender.

Who pays for the closing costs?

In a sellers market, normally the buyer pays for the closings cost, but because we're in a buyers market... the seller or banks, will pay between 2%-3% of the sales price.

The Settlement Statement (HUD 1) is a form that you sign at escrow before receiving the keys to your new home. Here is what it looks like. Normlly, the buyer pays for the following costs on the Settlement Statement (HUD 1) form... section, 800, 900, 1000, 1100, and 1200.

 

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Ambassador
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Debbie Laity
Cedaredge Land Company - Cedaredge, CO
Your Real Estate Resource for Delta County, CO

I'm going to suggest this post. Very well laid out and to the point for anyone involved in a real estate transaction. You're right...these cost seem to be falling upon the seller in this market. Except in a short sale. Buyer come ready to play with a short sale.

Jan 18, 2011 06:00 PM #1
Rainmaker
908,388
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Judah, this is a great list for home buyers getting in the market.  The most difficult part of home buying is getting the loan.

Jan 18, 2011 06:11 PM #2
Rainmaker
68,965
Freddy Delgadillo
Judah Realty Group - Bellevue, WA
Real Estate Broker specializing Greater Eastside

Debbie - Thank you! I do lots of short sales and I've experienced that the seller has always paid my closing costs, when I represent the buyer or the seller. But, yes... the costs are passed to the seller in todays market.

 

Jan 18, 2011 06:23 PM #3
Rainmaker
68,965
Freddy Delgadillo
Judah Realty Group - Bellevue, WA
Real Estate Broker specializing Greater Eastside

Pamela - you're so right... the loan process is the most difficult part, but if one plans ahead, its great leverage for the buyer when making an offer.

Jan 18, 2011 06:25 PM #4
Rainer
385,091
Sidney Kutchuk
Property Management & Sales at REALTY WORKS TEMECULA, CA 92590 (951) 217-6745 - Temecula, CA
Property Management & Sales Experts 951-217-6745

Freddy - Some other items that sometimes we forget are HOA fee's and private taxes.

Jan 18, 2011 06:30 PM #5
Rainmaker
780,388
Dan Edward Phillips
Dan Edward Phillips - Eureka, CA
Realtor and Broker/Owner

Good Morning Judah, excellent information for the home buyer to review.

Jan 18, 2011 10:19 PM #6
Rainmaker
68,965
Freddy Delgadillo
Judah Realty Group - Bellevue, WA
Real Estate Broker specializing Greater Eastside

Sidney - You're so right...HOA's apply at times, but taxes are always in the mix. I'll be updating the post.

Jan 19, 2011 05:19 PM #7
Rainmaker
68,965
Freddy Delgadillo
Judah Realty Group - Bellevue, WA
Real Estate Broker specializing Greater Eastside

Dan - thank you. BTW - I'm not Judah... I'm Freddy.

Jan 19, 2011 05:19 PM #8
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Rainmaker
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Freddy Delgadillo

Real Estate Broker specializing Greater Eastside
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