What the heck are closing costs? Who pays them? When are they due? How much are they? These are all commonly asked questions by first-time home buyers. You are not alone in your journey. Here are the answers.
Closing costs are the fees associated with the purchase of a property. Such services that include but are not limited to surveys of the property, lending fees, title fees, appraisal fees, inspection fees, real estate agent commissions, lending fees, clerical fees, etc.
You can estimate closing costs anywhere form 1-8 percent of the total value of the house you’re purchasing. Your lender will give you, in writing, an estimate of your closing costs up front. Then, three days or more before the closing on the property, you’ll receive a statement of actual closing costs.
Closing costs are most often paid by the buyer, not the seller. Closing costs are not covered by your home mortgage loan and will be paid cash-out-of-pocket. Before you put in an offer on a home, make sure you’ve got enough in savings for your down payment, earnest or good faith deposit, and your closing costs. An earnest or good faith deposit is a check you write to the seller when you make your offer to secure the agreement.
A land survey may be done to verify the boundaries of the property on which the property sits. Your surveyor’s fee will not be charged up front or at the time of service, but will be included in closing costs.
The title on the house must be cleared, meaning there are no liens or tax holds preventing the property from legally being sold. There are clerical fees or legal fees associated with this process.
Your loan processor, the one helping you process your loan application, will also be paid for these services upon closing.
The bank needs to verify the value of the property to ensure that its worth is equal to or greater than the amount that you’re borrowing. For this reason, an independent appraiser is asked to evaluate the property. The appraiser understands his invoice will be paid upon closing.
Some houses have faulty systems, extensive damage, or other reasons the house may lose value. Problems may include leaky roofs, plumbing or electrical problems, issues with heating and air, or termite infestations or damage. An independent inspector is asked to come in and evaluate the property to evaluate its condition. He or she also understands payment will be received upon closing.
A third party escrow agent or attorney may be contracted to handle the paperwork of the transaction, such as title transfer, service payments, mortgage satisfaction for the seller, commissions to the real estate agents, etc. That person will also receive a payment upon closing.
Each real estate agent, buying and seller agent, will receive a commission from the sale of the property, which they’ll be paid upon closing.
Generally speaking, you will not be responsible for contracting the service providers. This is usually handled by your real estate agent or lender. You will, however, need to grant the service providers access to your property so they can perform the services for which they were contracted.
It is not entirely uncommon for a buyer to request that the seller pay the closing costs. However, this contingency could cost you the offer if a competing offer is made without a contingency. It’s better for you to save the funds prior to the offer rather than negotiate those terms.
Closing costs are a normal part of the home buying process. If you’re not expecting them, it can be devastating. You may find yourself unable to purchase the property simply due to the fact that you didn’t know about closing costs, and didn’t prepare for them.
Call John Harper at 760-902-8437 or Shaun Waters at 760-636-3404 to tour available homes for sale in the Palm Springs area.