What Are Closing Costs?

Survey on closing costs
I read online this morning a survey that was conducted by ClosingCorp that two in three millennials (18 to 34 years old) who plan to own a home are unaware of closing costs. It also said that 34 percent of potential homeowners are “Not Very” or “Not At All” aware of closing costs.

So…I thought I would try and explain closing costs if your were to buy or sell an average home in Pike Township for $125,000.

Closing costs are all the costs associated with buying or selling a home. Here is a list of some types of closing costs that can be in a transaction. It does not cover all closing costs. Each transaction is different.

Homeowner association dues
Homeowners associations (HOA) usually have yearly fees. For the most part they are due in the beginning of the year. If the home was sold in the middle of the year, the seller would get a credit from the buyer.

Homeowner association transfer fee
A fee charged by homeowner associations that are professionally managed and some that are self managed that covers the costs of paperwork involved in switching owners.

County property taxes
In Indiana property taxes are paid a year in arrears. Property tax payments are billed and due in May and November. If the May 2015 bill was paid, it covers January through June of 2014. The November 2015 bill payment covers July through December 2014. If the property closes today April 1st 2015, the seller owned the house from January 2014 through April 1st 2015 and would be responsible for the property tax. Since the buyer would get the property tax bill in May and November for the year 2014, the seller gives the buyer a credit for property taxes at closing. The credit would also cover January 1st through April 1st 2015. This is standard operating procedure at closings in Indiana. (See Escrows)

Seller paid closing costs to buyer
Depending on how the transaction was negotiated, the seller could end up paying some of the buyers closing costs. There a lot of variables here. Some of them are 1)How motivated is the seller to sell 2)Sellers are more incline to pay some of the closing costs of the buyer the closer the buyer is to offering list price for the home 3)how good is the buyers agent in negotiating.

Seller paid real estate brokerage commission fee
Traditionally the seller pays the brokerage sales commission. If there were a listing agent’s brokerage and a buyers agent’s brokerage involved, the total commission is split between the two companies. If the listing agent is representing both seller and buyer then the total commission goes to the listing agents brokerage.

Fees paid by buyer associated with getting the loan
– origination fee
This is the fee by the lender for getting you the loan

– appraisal fee
Lenders require that the property be appraised. This is the fee that the appraiser charges the bank which gets passed on to the buyer.

– credit report
This is a fee charged by the lender for getting the buyers credit report.

– tax service
A lender fee paid to a tax service provider for information on the real estate property taxes.

– flood certification
A lender fee for a document showing flood zone information.

– flood determination fee
A lender fee paid to the service providing information on whether the property is in a flood zone.

– daily interest charges
When your mortgage is due the 1st of the month you are actually paying for month before. If you bought and closed on a home April 1st, your first payment would be payment would be June 1st but the lender makes you pay interest on the loan from April 1st to the end of the month. This is why most closings are at the end of the month. Less interest paid by buyer.

Down payment
Depending on the type of loan, this could be anywhere from 3 percent of the sell price of the house to 20 percent or more. The lender will require this to get the loan.

Escrows
– property taxes
Part of the monthly mortgage amount contains an escrow amount for county property taxes. It is usually 1/12 of the yearly amount. It is held by the lender who pays the property tax bill. At closing the lender wants to make sure they have enough escrowed for the first property tax bill. They may require the buyer to put money in escrow in advance.

– insurance
Part of the monthly mortgage amount contains an escrow amount for home insurance that the lender requires. It is usually 1/12 of the yearly amount. It is held by the lender who pays the insurance bill. At closing the lender wants to make sure they have enough escrowed for the first indurance bill. They may require the buyer to put money in escrow in advance.

Lenders title insurance
Title insurance offers financial protection against title problems that could not be found in the public records, are inadvertently missed in the title search process, or those that may arise from fraud or forgery. The title policy a lender requires only covers the lender’s interest in a property.

Sellers title insurance
Title insurance offers financial protection against title problems that could not be found in the public records, are inadvertently missed in the title search process, or those that may arise from fraud or forgery.

Search exam fee / Title services fee
Title company charge to research and process the property.

Closing fee
Title company fee for the actual physical closing. This could be paid by the seller of buyer or split. Depends on how the transaction was negotiated.

TIEFF fee
The title insurance enforcement fund is established for the following purposes:
To pay the costs of hiring and employing staff in the area of enforcement of title insurance law.

Courier fee
Title companies won’t deliver there own documents because of liability. The hire delivery services to deliver documents and pass the costs on.

Attorney fee for deed/affidavit
This is the document that an attorney prepares that when signed transfers the property to the new owner.

Closing protection letter
Closing protection letter is essentially an agreement from a title insurance company to a lender that indemnifies the lender against any issues arising from a closing agent’s errors, fraud or negligence.

Wire fee
Title company fee charged to pay off existing loans.

Government recording charges
Lender mortgages and lender notes are usually recorded. The county charges fees for recording which get passed on by the title company.

Home warranty
If a home warranty was negotiated in the transaction it would be considered a closing cost.

Here is an example of buyer and seller closing costs on a $125,000 home;
Disclosure – PLEASE NOTE – Lenders and title companies charge different amounts for the same services. It is best to shop around for a lender. They are required by federal law to give you a Good Faith Estimate of loan costs after you apply. Ask your Realtor what title company they recommend and why. A listing agent usually has preliminary title work done (for free) when they list a house. This insures that there won’t be any last minute surprises about the ability to transfer a property right before closing. If a title company does preliminary title work up front, chances are that the listing agent and seller will want to close at that title company although it can be negotiated. This is just an example and these are just estimated numbers.

Seller closing costs


$125,000 Sale price
$  8,750 Brokerage commission
$    400 Sellers title insurance policy
$      5 TIEFF fee
$     25 Wire fee
$     50 Courier fee
$     60 Deed/Affidavit document
$    405 Seller agrees to buy buyer a home warranty
$    280 Search exam fee
$  2,000 Seller agrees to pay some of buyers closing costs
$  1,500 Seller's credit to buyer for property taxes
$     25 Closing protection letter
$    100 -credit- Buyer gives credit to seller for HOA fee
$     75 HOA transfer fee
$    150 Closing fee (shared equally by buyer and seller)
$ 67,225 Payoff of existing mortgage

$ 45,950 Net to seller (usually a check given to seller)

Buyer closing costs

$125,000 Sale price
$118,750 -credit- Lenders loan (95%)
$  2,000 -credit- Seller pays some of buyers closing costs
$  1,000 -credit- Buyer put earnest money down
$  1,500 -credit- from seller for property taxes
$  1,188 Loan origination fee
$     30 Lenders charge for credit report
$     70 Lenders tax service fee
$     20 Lenders flood certification fee
$    400 Lenders appraisal fee
$  1,292 Escrow prepaids (property tax and insurance)
$    225 Daily interest charges by lender
$    600 First years insurance on the house (paid in advance)
$    195 Lenders title insurance policy
$     78 Title company recording fee
$    475 Title company services fee
$      5 TIEFF fee
$    150 Closing fee (shared equally by buyer and seller)
$     75 HOA transfer fee
$    100 HOA dues from time of closing to end of year

$  6,253 Buyer would have to bring to closing*

There could possibly be other charges to buyer and seller. For instance, if the buyer had a home inspection done and wanted something fixed and the seller agreed. The home inspection price to the buyer would be about $300. The repair costs the seller would pay for.

* If the amount is over $10,000 then the buyer has to wire the funds to the title company.

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