What to Expect with Your Closing Costs
Usually, the buyer faces more line-item expenses, but the seller pays the commission.
Rarely does a buyer or seller show up to the closing without knowing exactly what their costs of sale will be.
In fact, based on the mortgage loan amount of the purchase/sale price, it’s not hard to ballpark either side’s closing costs. Before you get too far along in the process, ask your real estate agent or mortgage professional for an estimate.
Once you have a real, live deal with a closing date, you should be able to know your costs pretty close to the penny.
If you’re new to real estate or haven’t bought or sold in a while, here’s what you need to know about closing costs.
Buyers have a higher number of costs
In a closing, both buyers and sellers have costs. Usually, the buyer is faced with more line-item expenses than the seller (although sellers pay more).
For starters, most buyers are getting loans to make the purchase, and many of the charges stem from the loan.
A buyer should receive a loan estimate form early on in the sale process. This document spells out all the approximate costs the buyer will face when making the purchase, so there aren’t any surprises at closing. Some buyers use the information on the loan estimate form to shop for different lenders, interest rates and costs.
Typically, buyers getting a loan will see some of the following costs:
- Appraisal fee
- Origination fee
- Prepaid interest
- Prepaid insurance
- Flood certification fee
- Tax servicing fee
- Credit report fee
- Bank processing fee
- Recording fee
- Notary fee
- Title insurance
Be sure to go through these fees line by line with your mortgage professional to understand exactly what they are and how they apply to your loan.
Aside from the expenses of getting a loan or buying a home, some expenses, such as property taxes or homeowners association dues, are pro-rated and paid at the time of closing. For example, if you’re buying a home and you close toward the end of the property tax period, you’ll likely need to pay the balance of taxes upfront.
The same holds true for prepaid loan interest. If you close toward the end of the month, the lender may ask for the first month’s payment up front.
Negotiate sharing some of the costs
Coming up with an extra one to two percent toward closing costs can be a bigger deal than a $5,000 reduction in the purchase price, so ask the seller to pick up some of the closing costs as a part of the negotiation.
Credit for $5,000 to go toward closing costs will be a much greater bang for the buyer’s buck. The price reduction won’t amount to much more than a few dollars per month over the length of the home loan. But saving $5,000 at the closing will be money right back in the buyer’s pocket.
Sellers pay the commission
For sellers, there are always fewer line items on an estimated closing statement. But the seller generally bears the biggest brunt of the fees: the real estate commission.
The commission is based on a percentage of the total sale price, so it tends to be the biggest fee. In addition to the real estate commission, sellers may have to pay the balance of their property taxes, if they haven’t done so already, as well as any prorated homeowners association dues.