Understanding closing costs is a crucial part of the home buying and selling process. As a Realtor, I guide my clients through the maze of fees and expenses that come with closing a real estate transaction. Here’s a breakdown to help demystify closing costs for both buyers and sellers.
For Buyers
Closing costs for buyers can range between 2% to 5% of the home’s purchase price and include a variety of fees, such as:
- Lender Fees: These may include loan origination fees, credit report fees, and appraisal fees. These are costs associated with procuring and processing the mortgage.
- Title Fees: Title search fees and title insurance costs protect against past defects in the title of the property.
- Prepaid Expenses: These include homeowner’s insurance, property taxes, and possibly private mortgage insurance (PMI) if your down payment is less than 20% of the home’s price.
- Escrow Accounts: Some lenders may require an escrow account to cover future homeowner’s insurance and property taxes.
- Recording Fees: Paid to the local recording office for the public record of the property transaction.
- Their agent’s brokerage fee.
For Sellers
Sellers also incur closing costs, which can subtract from the net proceeds of the home sale. These costs can include:
- Agent Commissions: Typically the largest expense, is paid to the real estate agent(s) involved in the transaction. It can be about 3% to 6% of the home’s selling price, sometimes split between the buyer’s agent and the seller’s agent.
- Title Insurance: Sellers often pay for the buyer’s title insurance policy, which protects the buyer from any title issues.
- Transfer Taxes: These are taxes imposed by the state, county, or municipality on the transfer of property.
- Miscellaneous Fees: These may include escrow fees, notary fees, and any agreed-upon repairs or credits to the buyer.
Negotiations: It’s important to note that almost all closing costs are negotiable. Part of my role as your Realtor is to help negotiate these costs to your advantage, whether you’re buying or selling. For buyers, lenders sometimes offer “no-closing-cost” mortgages, which either add these costs to the loan balance or charge a higher interest rate to cover them.
Planning and Preparation: For both buyers and sellers, understanding and planning for closing costs is essential. Buyers should save not only for their down payment but also for these additional expenses. Sellers should factor these costs into their calculations to understand the net proceeds from their home sale.
If you have any questions about closing costs or any other aspect of buying or selling a home, please don’t hesitate to reach out. My goal is to make your real estate transaction as transparent and stress-free as possible. Please text/call me at 916-508-5353 or email me at [email protected]. I’m always happy to help.