In any real estate transaction, the seller and buyer can expect to pay closing costs.
As buyers and sellers enter into contracts and plan for closing day, sometimes they forget to factor certain closing costs into their budget. One reason people forget about these costs? Because they aren’t always sure what, specifically, closing costs include, how much these costs are, and why they’re paying for them in the first place.
Breaking Down Your Closing Costs
Any real estate transaction will require at least some closing costs. While closing costs vary from state to state, and even county to county, these costs often fall into three main categories:
Lender’s Fees
Buyers who finance all or part of their investment will pay a variety of fees to the lender. These include:
Loan origination fee
Underwriting fee
Processing fee
Appraisal fee
Upfront mortgage insurance (PMI), if required
Mortgage broker fee
Rate lock fee
Credit report fee
Of course, none of the above fees are applicable when buying a property and paying cash.
Third-Party Fees
Closing a real estate transaction requires professional services, and those require fees. These fees include:
Realtor commissions
Municipal lien search
Title search/exam
Settlement/closing fees
Wire transfer fees
Estoppel letter, if applicable
Recording fees
Survey
County property taxes (prorated)
Prepaid Escrow (sometimes called Impounds)
When obtaining financing, the lender will (often) have your loan structured as an escrowed loan (although there are non-escrowed loans available). Escrowed loans require an initial funding of the Buyer’s escrow account at closing. Depending on the month of your closing, the amount of money the lender requires to be collected at closing will vary. This is because lenders will pay the annual property tax bill from the escrow account, and need to ensure they have sufficient cushion to fund the bill. The following items are commonly collected at closing:
County property taxes
Homeowners insurance premium
Premiums for additional required insurance, such as flood insurance
Who Pays Closing Costs?
Ultimately, the contract dictates which charges are to be paid by which party. Buyers should expect to pay their lender’s fees and prepaid costs to fund their escrow account. Sellers are often responsible for the realtor commissions and transfer tax (doc stamps on the deed), although this can be negotiated otherwise. As with any product, in any market, Buyers have less bargaining power in hot real estate markets.
Butler’s Widget Can Help
At Butler Title, we specialize in creating smooth closing experiences for our clients. We handle the details so buyers and sellers won’t have to become experts on calculating pro-rata tax payments and making sure each third-party vendor gets paid.
With our closing cost widget, we can help buyers and sellers have a much more accurate idea of their closing costs. Just click on the widget in the bottom-right corner of our home page to get started with a title insurance quote or seller net sheets. These tools can help sellers and buyers estimate their real closing costs.
This tool is just one part of our commitment to making sure each client has a seamless closing experience, free from unexpected costs and delays. If you choose to work with us, we communicate clearly so our clients know exactly what to expect. We will guide you through the process and are always happy to answer any questions that may come up. Whether you’re a realtor guiding your clients through a real estate transaction, a seasoned real estate investor, or a first-time home buyer, we invite you to experience the Butler Title difference.
Contact us today to learn about how we can help or to schedule your next closing.
Butler Title is a full-service, attorney owned and operated title insurance agency. We keep it simple and focus on what we do best: real estate closings. From first-time buyers to local moguls, BT provides an industry-leading fee structure and unparalleled experience.
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