When you’re setting out on the exciting endeavor of buying your first house, you’ll hear the term “closing costs” as you begin negotiating offers. Closing costs is a blanket term covering all of the professional services and expenses of completing the real estate transaction. The reason this is important to you, the buyer, is that it’s usually the buyer who foots the bill for the closing costs.
You can estimate closing costs at anywhere from one percent to eight percent of the total value of the home you’re purchasing. The other important factor about closing costs is that these are an out-of-pocket expense and are not generally covered by your home mortgage loan. So, on top of your twenty percent down payment and your earnest money deposit at the beginning of your transaction, you’ll also have a healthy chunk of change due at the end of your transaction.
In some real estate transactions, the buyer can negotiate terms so that the seller pays part or all of the closing costs.
Here’s a look at just a few of the items that may be included in your closing costs:
Lender:
Your lender earns a commission for working with you on your loan application. The lender helps you fill out the application, gather your documents, and guides you through the terms and conditions of the loan for which you’re applying.
Credit Check:
The bank or lending institution considering your home mortgage loan relies heavily on your credit report and credit score. For this reason, they order your credit reports, which comes with a cost.
Underwriting:
Your lender helped you understand and apply for your loan and the institution conducted credit checks to determine your qualifications. Now, a loan processor has to process the loan.
Title Check:
Before the seller can legally sell a property, the property must be free and clear of any liens or tax debts. A title check verifies the transferability of the title, but also for an expense.
Title Transfer:
When the title is proven clear and able to be transferred, the title is then transferred from the owner to the buyer. The city or county clerk usually charges for this service.
Survey:
In many cases, especially in rural areas, a surveyor is required to define the property boundaries.
Appraisal:
The bank wants to know the property is worth what the buyer is borrowing, so an appraiser is called in to determine the current market value of the house based on location, size, features, and condition.
Inspection:
An inspection verifies that the property and structure are in good shape. The inspector checks all of the major systems such as heating and air, plumbing, electrical, and structural items such as roofing. The inspection also tests for termites and other pests that could cause damage to the property.
Legalities:
Some states require the involvement of lawyers to oversee the drafting of the contracts.
Courier Fees:
Documents such as appraisal reports, inspector reports, surveys, contracts, financial documents, and more get transported from one location to another. In cases where documents are physically transferred from one institution to another, a courier handles the task and applies a fee.
Taxes and Insurance:
Not always, but in many real estate transactions, the lender insists that the buyer invest two months or more of property taxes and homeowners’ insurance. These payments are held in an escrow account until payment is due.
Escrow Agent:
The escrow agent is a third-party professional who handles the money and paperwork of the transaction. The escrow agent receives the loan money from the lender, then distributes the appropriate fees to each of the service providers, before paying the seller’s existing mortgage and cutting a check to the seller for the balance.
Real estate transactions involve many steps and processes as well as a multitude of services and service providers. While this may not be an all-inclusive list of what your closing costs will be, it does provide a good idea of what you can expect with closing costs.
Your lender will provide you an estimated amount of closing costs when your application is approved, but then will provide a statement of actual costs no less than three days before the close of sale.
Your real estate agent is the best source of information about the local community and real estate topics. Give The Lise Howe Group a call today at 240-401-5577 learn more about local areas, discuss selling a house, or tour available homes for sale.
