Firstly and mostly the average consumer should know that all closing costs are open to negotiation. This means that in any given contract, any expense can be paid by either the buyer or the seller. However, there are costs that typically related to the purchase and those are paid by the buyer. Likewise there are costs related to the sale and those are most usually paid by the seller.
Here's a list some of the typical concerns for real estate purchases, with specific notes for the condominium purchaser. Some of these (like Home Inspection) are optional and a few of these are only required from some buyers (like PMI).
- Bank costs, including application fee, credit report, appraisal or inspection fee, processing, bank attorney fee. These fees are related to the acquisition of the loan and thus an expense of the buyer and usually paid by the buyer. These fees include discount points and origination points. Each point is 1% of the mortgage amount. Discount points reduce the interest rate. Origination points are paid to the bank or broker to make the loan.
- Attorney fee for representation of Buyer interest at settlement. In some states, a lawyer is paid to negotiate the interests of the buyer, but in the Commonwealth of Virginia, a settlement agent (who is often an attorney) works to ensure that the contract is followed. The settlement agent makes no representations or opinions about the deal that was negotiated. Rather the settlement agent ensures that all parties are fairly treated with regard to the contract presented.
- Property tax escrows are usually moneys held by the lender to pay property taxes on the behalf of the owner. The seller is usually responsible for taxes up to the point that the sale closes and the buyer pays taxes during his ownership. The settlement agent reconciles this to the penny to determine who owes what taxes at closing.
- Buyers often have to pay prorations to the seller for taxes, oil, water, sewer, rents or condo fees. The prorations are are paid to reimburse the seller for items that were paid in advance by seller. For example, if the condo fee due on the first covers the entire month, but the sale happens on the 15th, the buyer owes the seller for half of a month of condo fees.
- Both the buyer and the seller have to pay fees for recording deed and mortgage. This is a nominal fee paid to the settlement agent.
- Buyers must pay for their fire and liability insurance policy. Lenders usually require that this is prepaid for six months or a year. Condo owners rarely pay this fee as the policy is often included in the condo fee.
- When the sale doesn't close on the first of the month, the buyer prepays a fraction of a month's interest.
- Buyers who have a minimum down payment may have to pay Private Mortgage Insurance (PMI) premium.
- Many lenders require the purchaser to obtain (and pay for) a survey. This is rare for condo buyers, but condo buyers have to pay for "condo docs", the documents that spell out the condominium rules and finances.
- Buyers who want a home inspection must pay for one.
- Most usually, the seller pays the realtors.
- Lenders require that buyers purchase title insurance to insure their interest against claims and fraud.
If this seems like a lot for a first time buyer to remember, don't worry that's why you have professionals to help you along the way. Your agent, settlement agent and mortgage broker or lender will help you make the transition smooth and easy. In Northern Virginia, if you have questions or need futher help, please contact Will Nesbitt.