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Buyer
Closing Costs
When
buyers apply for loans, lenders are required to provide them with
a good-faith estimate of their closing costs. The fees vary according
to several factors, including the type of loan they applied for
and the terms of the purchase agreement. Likewise, some of the closing
costs, especially those associated with the loan application, are
actually paid in advance. Some typical buyer closing costs include:
- The
down payment
- Loan
fees (points, application fee, credit report)
- Prepaid
interest
- Inspection
fees
- Appraisal
- Mortgage
insurance
- Hazard
insurance
- Title
insurance
- Documentary
stamps on the note
Seller
Closing Costs
If
the seller has not yet paid for the house in full, the seller's
most important closing cost is satisfying the remaining balance
of the existing loan. Before the date of closing, the escrow officer
contacts the seller's lender to verify the amount needed to close
out the loan. Then, along with any other fees, the original loan
will be paid for at the time of closing before the seller receives
any proceeds from the sale. Other seller closing costs can include:
- Broker's
commission
- Transfer
taxes
- Documentary
Stamps on the Deed
- Title
insurance
- Property
taxes (prorated)
Negotiating
Closing Costs
In
addition to the sales price, buyers and sellers frequently include
closing costs in their negotiations. This can be for both major
and minor fees. For example, if a buyer is particularly nervous
about the condition of the plumbing, the seller may agree to pay
for the house inspection.
Likewise,
a buyer may want to save on up-front expenditures and so agrees
to pay the seller's full asking price in return for the seller paying
all the allowable closing costs. There's no right or wrong way to
negotiate closing costs; just be sure all the terms are written
down on the purchase agreement.
Prorations
At
the closing, certain costs are often prorated (or distributed) between
buyer and seller. The most common prorations are for property taxes.
This is because property taxes are typically paid at the end of
the tax year for which they were assessed.
Thus,
if a house is sold in June, the seller will have lived in the house
for half the year, but the bill for the taxes will not come due
until the following year! To make this situation more equitable,
the taxes are prorated. In this example, the seller credits the
buyer for half the taxes at closing.
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