Ask Erin: Closing Costs

I spoke at length with a prospective first-time buyer yesterday. Even though she had been communicating for quite some time with an online Loan Broker, this broker (who shall remain nameless) had not gone over in any detail with this buyer what closing costs are. By the way everyone – that by itself should be a HUGE red flag!

Anyway. There are fees involved in the sale and purchase of real estate – these are referred to as “closing costs.” In general, there are certain fees are automatically assigned to either the buyer or the seller; other costs are either negotiable or dictated by local customs. In addition to the sales price, buyers and sellers frequently include closing costs in their negotiations. Most banks will allow for 3% of the purchase price to be credited by the seller to the buyer to cover their closing costs.

Buyer closing costs

When a buyer applies for a loan, lenders are required to provide them with a good-faith estimate (GFE) of their closing costs. A GFE is basically an itemized list of whatever fees are to be paid, and how much they are. The fees vary according to many factors, including the type of loan they applied for, the city and county where the property is purchased, and the terms of the purchase agreement. Some typical buyer closing costs can include:

-Credit report
-Loan fees (points, application fee, admin fees)
-Prepaid interest
-Inspection fees
-Mortgage insurance
-Hazard insurance
-Title insurance
-Notary fees
-City and/or county transfer taxes
-Pre-paid property tax reserves
-Recording fees
-Escrow fees

Seller closing costs

In addition to paying off any remaining loan balance(s), the seller generally has closing costs as well. Once a purchase agreement has been reached, escrow will send a “Demand for Payoff” to the seller’s lender. Then, along with any other fees, the original loan will be paid for at the closing before the seller receives any proceeds from the sale. Typical seller closing costs can include:

-Broker’s commission
-Any credits to the buyer
-Costs for Repairs
-Buyer’s home warranty
-Inspection fees
-City and/or county transfer taxes
-Pro-rated utility fees
-Pro-rated property taxes
-Notary Fees
-Title insurance

Keep in mind these are partial lists based on what I generally see in Sacramento County, but vary depending on individual transactions, negotiations, and what is customary for the area…
If you are a buyer, BE SURE to ask your loan officer for a GFE so that you understand what your closing costs will entail before you start your home search. If you are a seller, have your agent prepare an Estimated Closing Statement so you can see a close estimate of what you will net as the result of selling your property…