Closing Costs

What’s Included in Closing Costs?

Closing costs are the myriad fees and charges associated with the finalization of a real estate transaction. These costs are usually shared between the buyer and the seller and include various services rendered during the home-buying or selling process.

Common Types of Closing Costs

1. Brokerage Commissions: Fees paid to real estate agents for facilitating the sale, often ranging from 3-7% of the sale price.
2. Lender Fees: This includes discount points, loan origination fees, and other charges levied by the lender.
3. Title Insurance Premium: A charge for the insurance policy that protects against future claims to the property’s title.
4. Recording Fees: Fees charged to officially register the property deed with the local government.
5. Prepayment Penalty: Fees incurred for paying off a mortgage loan earlier than the agreed term.
6. Inspection and Appraisal Fees: Costs for property inspections and appraisals to assess the property’s condition and market value.
7. Attorney’s Fees: Legal fees for handling the closing paperwork and ensuring the transaction adheres to local laws.

Examples

• Brokerage Commissions: If a home sells for $200,000 and the brokerage commission is 6%, the commission fee will be $12,000.
• Title Insurance: For a $300,000 home, the typical title insurance premium might be approximately $1,000.
• Appraisal Fees: Generally range from $300 to $500 depending on the property location and size.

FAQ

1. What are closing costs? Closing costs are the fees and expenses that buyers and sellers must pay at the time of a real estate transaction closing.

2. What is the average percentage for closing costs? For buyers, closing costs generally range between 2-4% of the purchase price. For sellers, these costs might be between 3-10% of the sale price, including brokerage commissions.

3. Can closing costs be negotiated? Yes, some closing costs can be negotiated between the buyer and seller or reduced by shopping around for services like home inspections and title insurance.

4. When are closing costs paid? Closing costs are usually paid at the closing meeting, where the property ownership is officially transferred from the seller to the buyer.

5. Can closing costs be rolled into a mortgage? In certain circumstances, closing costs can be included in the mortgage loan, thereby spreading these costs over the life of the loan but potentially increasing the overall interest paid.

Glossary of Related Terms

• Escrow: A neutral third party holds assets or funds before they are transferred from one party to another.
• Earnest Money: A deposit made to a seller showing the buyer’s good faith in a transaction.
• Title Search: An examination of public records to confirm a property’s legal ownership and identify any liens.
• Settlement Statement: A document that shows a full breakdown of all closing-related costs, issued at the closing.

Online Resources

1. CFPB - Consumer Financial Protection Bureau: Closing Costs
2. Investopedia - Closing Costs
3. Zillow - What Are Closing Costs? [Video]
4. Nolo - Closing Costs: Defined and Explained

References

• Investopedia. “What Are Closing Costs?” Retrieved from Investopedia.
• Consumer Financial Protection Bureau (CFPB). “Closing Costs”. Retrieved from CFPB.

Suggested Books for Further Reading

1. “Home Buying Kit For Dummies” by Eric Tyson and Ray Brown
2. “The Book on Negotiating Real Estate” by J Scott, Mark Ferguson, and Carol Scott
3. “Real Estate Investing For Dummies” by Eric Tyson and Robert S. Griswold

Real Estate Basics: Closing Costs Fundamentals Quiz