What you need to know about closing cost before you sign a contract!
Buying or selling a home includes a variety of costs, and it’s important that you fully understand what cost apply to you. What is closing? The closing is the time when the property transfers and all requirements are met including paying all outstanding balances and signing all legal documents. In short, if you are the buyer this is when the home becomes yours. What are closing cost? Closing costs are any and all fees associated with the buying or selling of property.
Don’t be caught off guard at the closing table! Understand what fees are required in advance. Your Realtor should go over these with you throughout the process. The average closing costs are between 2% and 6% of the purchase price of the property not including the down payment. This can add up quickly, which is why it’s so important to understand your closing cost prior to signing a contract.
It’s also important to understand that closing costs can be negotiated as part of the deal. If you are the buyers, you can negotiate with the seller to pay for closing cost. Depending on your loan type will depend on the amount you can negotiate. As a seller it’s also important to know prior to putting your home on the market if this is common in your area. As local experts here at The Rivera Group we study the market for our sellers and tell them what to expect for a first offer and if/how much seller closing cost could be requested.
Here is the general breakdown. Please keep in mind that each transaction is different, and you should be talking to your local expert to better understand your closing cost.
Prorated Property Tax – The seller is responsible for paying any accrued property taxes prior to the close of the transaction. Often, sellers have money in their escrow account with their mortgage lender to cover these costs. However, if they do not, the seller must pay this amount.
State and/or County Transfer Tax – Some states and counties require a transfer tax when a property is sold. This fee varies from place to place. In Delaware both the seller and the buyer are reasonable for 2% of the purchase price. However, there are exemptions in Delaware and your local expert will be able to inform you in the buyer on your home qualifies for any of those exemptions based on the contract.
Professional Fees – These would include the following. Realtor, Brokerage commission that you as the seller agreed to at the time of signing your listing agreement. In Delaware, the closing attorney fees which would include items like the Deed Preparation, Wire Fees, Recording Fee and Mortgage Payoff Fees. All liens must be covered before the property can transfer ownership.
Repairs – The seller may be asked to make repairs to the property before the closing. If this is negotiated by the buyer, the seller must provide a receipt or other proof that the agreed to repairs were made.
Homeowner Taxes and Insurance – In most instances, the buyer is required to pay two months coverage for taxes and insurance to their escrow accounts at the closing.
State and/or County Transfer Tax – As mentioned above some states and counties require a transfer tax when a property is sold. This fee varies from place to place. In Delaware both the seller and the buyer are reasonable for 2% of the purchase price. However, there are exemptions in Delaware and your local expert will be able to inform you if you qualify for any of those exemptions.
Attorney Fees – An attorney is usually present at the closing to ensure the transaction follows all legal requirements. The buyer is responsible for paying the fees for their attorney.
Inspection Fee – An inspection is usually not required but is highly advised before purchasing property. The buyer must pay the inspection company’s fees.
HOA Transfer Fees – Another surprising fee is the HOA transfer fee. If you are moving into a community with an HOA, the organization may charge a fee to transfer the new owner’s information to the property.
Loan Origination Fee – The loan origination fee is from the mortgage company to cover the cost of the loan application. This amount often also includes the cost for appraisal. However, if the fee doesn’t include the appraisal fee, the buyer is also responsible for paying that fee.
Mortgage Payments – Before a lender officially starts your mortgage loan, several fees are often due. We discussed the taxes and insurance escrow fees above. Also, the down payment must be made at closing. Often, homebuyers make a Points Payment to cover percent points on the home and lower monthly payment costs. All agreed to payments must be made in order to secure financing.
Recording Fee – This is a fee charged by your local government, usually the county, to record the real estate transaction.
Understand Closing Costs from the Start
An experienced real estate agent works with their clients from the start to explain the required closing costs. Don’t be caught off guard at closing. Ask about all potential closing expenses before you decide to purchase a home. Especially for buyers securing a mortgage, it’s important to understand what your mortgage lender requires to ensure you will be able to make all necessary payments on closing day.
Contact your real estate experts at The Rivera Group to discuss buying or selling a home. We work closely with our clients to make sure there are no surprises at closing time.