What Closing Costs Can I Expect When Buying or Selling a Home?

By
Services for Real Estate Pros with RealEstate.com
https://activerain.com/droplet/Jrg

The stakes in real estate transactions are high – and often fraught with emotion for people who may well be engaging in the biggest purchase or sale of their lives. Furthermore, it takes a lot of different people working together to make a home purchase or other real estate transaction happen. The buyer and seller are just the beneficiaries of a tremendous amount of effort that takes place on the part of lenders, real estate agents, escrow representatives, property and title insurance agents, county registrars and local property tax officials – and no one in these agencies can work for free.

The good news is that if you are a buyer, you shouldn’t be blindsided by any significant unexpected costs: Federal laws require lenders to provide their customers with a good faith estimate, or GFE, of your closing costs, within three days of your loan application. All your expected closing costs are delineated in this document, though some of them can vary by as much as 10 percent when you get to the closing table.

It is important to compare the GFE with any HUD-1 forms you receive in the mail during the escrow process. You may receive more than one as the loan progresses. It’s important to read each one and compare the figures to those on the GFE. The information on page 3 of the HUD-1, located at the bottom of the second chart, will show you the difference between the figures on the two documents and outline which costs can’t increase and which ones can’t increase by more than 10 percent. You may be entitled to a refund if the lender miscalculated or failed to disclose certain items. Point out any discrepancies to your lender or your real estate agent.

Closing Costs When Buying a Home

As a buyer, using a conventional loan, you can expect to pay the following fees at closing:

  • Origination Fees – This is a fee you pay to your lender for securing the capital for you. However, in some cases, the origination fee can be wrapped into the balance of the loan.
  • Points – These are essentially fees you pay to “buy down” to a lower interest rate. For example, your lender may give you an option of a loan at 5 percent with no points, or a loan at 4 percent with a payment of 1 percent of the mortgage value at closing. Each “point” is 1 percent of the loan amount.
  • Credit Check Fee – Self-explanatory. The lender has to pay a fee to run your credit report. They pass this fee on to you.
  • Appraisal Fees – These are fees for an independent appraisal of the property’s value to the lender.
  • Lender’s Attorney’s Fee – Yeah, this is kind of the lender’s problem, not yours. Consider objecting.
  • Title Services and Lender’s Title Insurance – Title insurance provides coverage in case the seller does not own the title free and clear, and someone else comes to claim an interest in the property at some later date. This fee pays for a title search as well as a premium to compensate the lender in the event the title is in question.
  • Owner’s Title Insurance – This insurance protects you, as opposed to the lender. If the seller does not have clear title to sell, and another claimant emerges with a legitimate interest in the property, title insurance ensures that you will be financially made whole.
  • Property Inspection Fees – At a minimum, you should have a home inspection and a wood-destroying pest inspection done. Additionally, you may want to get a water inspection, a septic inspection, or a radon inspection, depending on the property.
  • Transfer Taxes – These are fees your municipal or state government may tack on for the effort required to update property records, search for outstanding liens on the property, and issue a new title. This tax is based on the sale price of the home.
  • Escrow Deposit – You will need to come up with money to give to the escrow company to pay for recurring charges on your property, including property tax and insurance.
  • Homeowners Insurance – You will need to obtain homeowners insurance coverage on the property prior to closing. Consider getting it in place about two weeks prior to closing.

As a buyer, you shouldn’t normally be required to pay any real estate agent or broker fees. For residential transactions, unless the buyer specifically requests a buyer’s agent rather than a traditional real estate agent, the agent is always paid by the seller.

Shared Closing Costs

The buyer and seller each share the prorated property taxes, as well as prorated property insurance costs, which are calculated based on the date the change of title is stamped and recorded. The date of recordation is not necessarily the same as the closing date. The seller will pay property taxes up through the date of recordation, and the escrow company will pay the remainder out of your escrow deposit.

Closing Costs When Selling a Home

For sellers, the transaction is simpler, but no less expensive: The seller typically pays real estate commissions for both the listing agent and the buyer-side agent. Some sellers bypass the real estate agent, however, offering their homes for sale directly – “For Sale Buy Owner,” or FSBO - and potentially save tens of thousands of dollars in closing costs. The downside: It could take awhile to sell the house, unless you have a buyer in mind already.

As a seller, you can also expect to pay your last prorated utility, water and trash pickup bills.

Depending on your jurisdiction, you may also get tagged for transfer or stamp taxes at the municipal, county or state level. Your real estate agent should be able to give you a full breakdown on fees and taxes required of you for your particular locale.

In sum, no matter which side of the transaction you’re on, expect to bring some additional cash to the closing table. The total amount that buyers and sellers pay can vary widely depending on origination fees, commissions, local taxes, and other factors. For more detailed information, you can read the Department of Housing and Urban Development’s Guide to Settlement Costs.

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Re-Blogged 8 times:

Re-Blogged By Re-Blogged At
  1. Doug Maas 09/28/2012 02:22 AM
  2. Dale Taylor 09/28/2012 03:45 AM
  3. Curtis Hunt 09/28/2012 05:13 AM
  4. Evelyn Kennedy 09/28/2012 08:07 AM
  5. Lori Cain 09/28/2012 08:54 AM
  6. Eric Michael 09/28/2012 10:19 AM
  7. Joy Daniels 10/01/2012 10:42 AM
  8. Winston Heverly 02/01/2013 11:03 AM
Topic:
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Tags:
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closing
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costs
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Rainmaker
917,488
Ginger Harper
Coldwell Banker Sea Coast Advantage - Southport, NC
Your Southport~Oak Island Agent~Brunswick County!

Looks like you have put this in a nutshell for us.

Thanks,

Ginger

Sep 28, 2012 05:35 AM #14
Rainmaker
746,154
Jill Sackler
Charles Rutenberg Realty Inc. 516-575-7500 - Long Beach, NY
LI South Shore Real Estate - Broker Associate

You've created a very handy little list. It's such a common question and this is a good summary.

Sep 28, 2012 05:39 AM #15
Rainmaker
2,730,918
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Eric - Sometimes, there are additional closing costs develop few days before closing. Thanks for the information about what closing cost can I expect when buying or selling a home.

Sep 28, 2012 06:16 AM #16
Rainmaker
1,786,877
Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

Eric, good post on sharing buyers and sellers need to anticipate and bring money to closing...i can remember a closing for a house years ago where the real estate attorney didn't tell me quite how much to bring & I was shocked at the amount...way before GFE..so thank goodness for it.

Sep 28, 2012 06:54 AM #17
Rainmaker
809,907
Evelyn Kennedy
Alain Pinel Realtors - Alameda, CA
Alameda, Real Estate, Alameda, CA

Eric:

I have been surprised by many buyers whom I counsel about buying a home because they don't realize there are other fees they must pay when they buy a house.  You write the costs in a way that buyer can easily understand.

Sep 28, 2012 08:04 AM #18
Rainmaker
288,942
Pippa Mac
Chevaux Group Realtor, The Woodlands and Spring - The Woodlands, TX
The Woodlands TX Real Estate

super informative .... every buyer should read this!   pippa

Sep 28, 2012 08:45 AM #19
Rainmaker
545,563
Lori Cain
eXp Realty - Tulsa, OK
Midtown Tulsa Real Estate Top Producer

Great information - am definitely going to re-blog. In Oklahoma, we may be the last state where the Seller pays to bring the abstract up to date ($400-$700) for each transaction.

Sep 28, 2012 08:52 AM #20
Anonymous
Tim Armbruster

Hi -  Great Article.  We have a calculator that calculates all of this for you, and will create a PDF report as well.  It's located at http://www.closing.com/smartclosing-mortgage-calculator/application/

Sep 28, 2012 10:12 AM #21
Rainmaker
544,156
Eric Michael
Remerica Integrity, Realtors®, Northville, MI - Livonia, MI
Metro Detroit Real Estate Professional 734.564.1519

Eric, that's a great blog about closing costs. The final numbers seem to be confusing a lot more often than not. Thanks!

Sep 28, 2012 10:17 AM #22
Ambassador
2,007,427
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M
Eric - This is important information for buyers. They need to understand what they will be paying.
Sep 28, 2012 12:53 PM #23
Ambassador
4,112,821
Bob Crane
Woodland Management Service / Woodland Real Estate, Keller Williams Fox Cities - Stevens Point, WI
Forestland Experts! 715-204-9671

Eric, this is a good list to get your buyers ready for what the banker is going to want to tack on to the loan, there are ways around some of these, but probably not for first time buyers.

 

Sep 28, 2012 10:18 PM #25
Rainmaker
90,505
Goran Utvic
606 Homes LLC | Chicagoland Brokers Inc, Chicago IL 60656 - Chicago, IL
We Buy & Sell Chicago Houses Fast

Thank you Eric...this is a great post to share with clients that explains what their costs would be to close on a property.

Sep 29, 2012 02:27 AM #26
Rainer
122,523
Ben Gerritsen
Mortgage Miracles Happen, NMLS ID: 1289680 - Ogden, UT
Mortgage Loan Originator

Hi Eric,

Here's one critical item that was left out.

When selling a home, there are two title policies. 95% of the time, the seller pays for a policy that is called "Owners Title policy (owners title insurance policy).

Notes: This policy is more expensive than the lenders policy. This is a cost that needs to be budgeted for in the expense of selling a home. You cannot overlook the total expenses and this is one to account for.

You can get quotes from different title companies for an owners policy.

You will also want to ask the title company if there are any other costs that they will charge, such as a doc prep or a closing fee for the seller.

Sep 29, 2012 02:47 AM #27
Ambassador
668,055
John DL Arendsen
CREST BACKYARD HOMES, ON THE LEVEL GENERAL & FACTORY BUILT HOME CONTRACTOR, TAG REAL ESTATE SALES & INVESTMENTS - Leucadia, CA
Crest Backyard Homes "ADU" dealer & Contractor

I cut and pasted this into my "TO DO" file. These are very rudamentary and elementary steps we should all know but don't always implement. Great step by step guide.

Sep 29, 2012 03:36 AM #28
Rainmaker
899,794
Joy Daniels
Joy Daniels Real Estate Group, Ltd. - Harrisburg, PA

Every buyer needs this list- I have bookmarked your very informative post - thank you!

Sep 29, 2012 06:38 AM #29
Rainer
293,375
Nan Jester
Exit Real Estate Gallery Jacksonville Beach, FL - Jacksonville Beach, FL
Realtor, Exit Real Estate Gallery

I have designed an elaborate excel spread sheet that automatically calculates the closing costs for either buyer or seller.  Another shared cost is home owner's association and CDD fees.

Sep 30, 2012 01:59 AM #30
Rainmaker
290,062
Shanna Day Team Leader (UT & AZ)
Keller Williams SLC (UT) and Keller Williams Realty EV (AZ) - Park City, UT
Keller Williams Realty

Eric - this is a great list.   I seem to be following everyone of your posts because they are truly valuable.  Thank you.  Shanna

Sep 30, 2012 12:00 PM #31
Rainmaker
120,440
Sean Williams
AcklesWilliams of Semonin Realtors - Louisville, KY
Your Louisville Realtor

It is pretty common in Louisville, KY for the seller to pay the closing costs especially for FHA/First time home buyers!

Sep 30, 2012 11:01 PM #32
Anonymous
Kunni Biener, Esq.

Just remember that many things are regional.  I learned this graphically a few years ago when my daughter was buying a condo in NC.  I am a Maryland Attorney and off the top of my head, I said, oh, about 6K in closing.  Which my daughter apparently wrote in stone somewhere. She called me a few days before closing (mind you she had found a great loan officer and I had found her a NC attorney) upset that they had screwed up, her costs were TOO LOW.   Yep, in NC the buyer doesn't pay transfer and rec taxes.   She had extra money at closing.   Fortunately, it wasn't the other way around......

Oct 01, 2012 01:44 AM #33
Rainmaker
1,482,701
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Calabasas CA

I keep it simple for my clients. There are two groups of closing costs( expect min 1% up to 6% of the purchase price) :

  • Amounts paid to state and local governments. These include city, county and state transfer taxes, recording fees, and prepaid property taxes.
  • Costs of getting a mortgage. These include title insurance, survey, appraisals, credit checks, loan origination and documentation fees, commitment and processing fees, hazard and mortgage insurance and interest prepayments.

 

Aug 31, 2013 06:57 PM #34
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