What are closing costs?

[blange]

I am getting ready to make an offer on a home? I've heard of closing costs before and know they are often used in negotiations. But to be honest I have no idea what they are.

Thanks,

-Brian

[aprazma]

I am getting ready to make an offer on a home? I've heard of closing costs before and know they are often used in negotiations. But to be honest I have no idea what they are.

Thanks,

-Brian


Closing costs for the buyer include loan origination fees (typically about 1%), lender's title insurance, owner's title insurance, flood certification, local transfer tax, prepaid mortgage interest, and notary fees.

Title insurance benefits you and the lender by guaranteeing the title from defects (such as someone else owning some interest in the property). Transfer tax is imposed by local government. Prepaid mortgage interest can be reduced if you schedule your Close of Escrow close to the end of the month (for example, if you have a COE on 10/28/2007 and your first mortgage payment is on 12/1/2007, you will typically pay 3 days of interest at about $50-60 per day. Closing mid-month would be much more cash-costly since you would pay for 15 days of interest instead.)

Other miscellaneous fees charged by lenders (sometimes called "junk fees", for example a "documentation fee", are not always mandatory, and can be used to compare one lender to another.

Depending on your market area, you may be able to negotiate (place into the offer) that the seller pays some of all of your closing costs. Most lenders will allow up to 3% of the purchase price to be paid by the seller as closing cost credits.

Current tax law is favorable to buyers in that case. A buyer can deduct closing costs actually paid by seller as being costs that the buyer paid to obtain their mortgage. Consult an accountant or attorney for more information on this. Verify that you receive a proper closing statement from the title company, and an end-of-year tax document in January.

Your lender should be providing you a Good Faith Estimate that will estimate your closing costs with fairly good accuracy.

[Thesa]

Every area is different but a good rule of thumb is closing costs often times run to be about 3% of the purchase price - including the appraisal,, home inspection and all those wonderful fees.

Your REALTOR® should be able to tell you what to expect for your area.

[RyanLends]

The answers below pretty much hit it right on. Keep in mind that you should be able to gain a Good Faith Estimate (GFE) from your lender!! They should have this information at hand and be able to get you a great idea of which costs are set and which costs will vary based on closing date.

CONGRATS!!!

[Ryan]

Yes, Fantastic info.. I was going to add one thing.. Each party typically pays its own set of closing costs.. If you want to include them with your offer you could do that.. keep in mind that the seller already is paying the title policy, the commission, and other fees to the title company.

So they will just take your request for closing costs and pull it off of the original offer as there bottom line... usually only do this is there are not any competing offers

[TahoeResource]

I would recommend contacting your lender for a Good Faith Estimate, and then forward that to a title company to provide you with a "Buyer's Estimated Closing Statement". This will outline most of the potential fees involved with the purchase of the property. Ask your real estate agent if there are any other expenses you can anticipate, and which fees (if any) are negotiagble...