Closing costs
What is meant by closing real estate?
The real estate property, when sold, is generally transferred from the seller to the buyer through a contract known as the real estate contract. The time when the real estate contract actually takes place or is executed and the title of the property is transferred from the seller to the buyer is known as closing of real estate. Similarly, closing house or closing home takes place when the contract under execution relates to the sale of a house or home.
What are closing costs?
When the transaction of sale of property takes place and the real estate contract is executed, it is normal to have other expenses incurred over and above the price of the real estate itself and these costs relating to the process of closing are referred to as closing costs. These costs are incurred by either of the parties involved be it the buyer or the seller and these costs take the form of numerous expense.
Types of closing costs:
There are various types of expenses that are incurred as closing cost during the mortgage closing. These costs increases the expenses incurred by parties, the buyer and the seller. Mortgage closing costs may take numerous forms, some of which are discussed as under:
Attorney fees – These fees include charges of the lawyer that are paid by either buyer or seller or both and these fees relate to the documentation of the official proceedings. Each of the party involved in the transaction can have their own representative attorney and they are specifically required in institutional lending when proper documentation is a need.
Title service charges – These charges are paid by the party mentioned in the contract which can be either of buyer or seller. Most of the times, seller ends up paying majority of these charges for various title services like title insurance and title search. Also, at times these fees are combined with the attorney fees because attorney performs these title services.
Recording fees – These charges are paid to government entity so that the record for the change of ownership can be maintained with the authority. Government records the deed and then charge for that which either of the parties ends up paying.
Taxes or transaction stamps – Different jurisdiction demand different parties to pay these costs or these charges can be paid by both parties and these costs are required by the law as excise tax on the transaction to aid to a government entity.
Survey fee – Survey fee relates to survey conducted for the determination of the dimensions of land under transaction and these charges are paid by either buyer or seller.
Brokerage commission – These costs are paid to the real estate broker by the seller for his services of marketing of the real estate, looking for the buyer and helping during the deal. These commissions are normally paid as a percentage of sale prices and it is predetermined in the listing agreement between the seller and the broker. The broker also pays a certain portion of the brokerage commission to the buyer agents for their help in finding the buyers of the property involved. This expense is only incurred when the services of the broker are used and is generally the largest of all mortgages closing cost incurred.
Mortgage application fees – These charges are paid to the lender by the buyer for the expenses incurred during the handling of the loan application. Sometimes, these charges are paid by the borrower before the closing otherwise it is the part the closing costs to be paid at closing loan.
Points – Points are gained dispensed by the borrower to the lender and are a type of prepaid interest expense that the lender demands instead of a higher rate to be charged on the mortgage loan and one point is the amount equal to 1% of the principal amount of the loan.
Appraisal fees – these fees are normally incurred by the buyer and seller incurs these fees exceptionally. These fees are charged by the appraiser who is a licensed professional, for the appraisal that is executed for the mortgage loan and it is a verification of the fact that the market value of the property is less than or equal to the amount of loan.
Inspection fees – These fees again are paid by the buyer most of the time and is charged by the inspector to ensure that the property under transaction is in good condition based on termite and pest inspection so as to validate the other findings that the collateral will not lose its market value over the period of time.
Home warranties – the home warranties insurance relate to insuring normal wear and tear of certain home appliances against the repairing and replacement costs. Buyers can opt to buy these home warranties on closing and based on this decision, these costs are incurred by buyer or seller.
Property insurance (prepaid) – These costs are generally incurred by the buyer, but the seller can reimburse them later. The mortgage holders generally demand that the collateral should be properly insured throughout the life of the mortgage loan and thus, the mortgagor is required to pay in advance the insurance expense of the first whole year. If the mortgagor does not pay this cost in advance, it becomes one of the closing fees to be paid at the time of closing.
There are several other closing costs namely; pro rata property taxes, pro rats homeowner association dues and pro rata interest. Every borrower prefers to opt for the no closing cost mortgage and there are certain companies that offer no closing costs. However, this is not possible to have absolutely no closing cost, but these costs can be minimized.
If you want to learn more about the closing costs, log on to a good search engine and try finding interesting facts regarding closing refinance and refinance closing costs. Also, you can search for the companies that offer minimum closing costs.