In real estate transactions, closing costs are the fees and expenses associated with the purchase or sale of the property that is payable at the time of closing. These costs include a variety of fees and are negotiated between the seller and the buyer. Closing costs can be confusing for both buyers and sellers.
To explain closing costs to your clients, provide them with a breakdown of the estimated costs for their specific transaction. Here is a list of the top 10 costs that are collected at closing to help your clients understand what fees they are responsible for and why they need to pay them.
The escrow fee is a part of closing costs, and it is the fee that the title or escrow company charges to handle the escrow for managing and allocating the funds placed in escrow at closing. At Access Home Closing, we have a simple flat fee, where most of the traditional fees associated with escrow, are covered.
A payoff is a statement that tells us how much is owed for the mortgage or lien. It is built into a Payoff/Demand statement and the seller has to pay to remove those encumbrances. Depending on how the letter is requested, there might be a fee for the document generation as well.
An Owner’s Policy,or Owner’s Policy of Title Insurance, traditionally paid for by the seller, protects the buyer’s interest in the property by assuring the buyer that the seller had the authority to sale the property, among other assurances.
If the buyer has a loan, the lender will often require, as a condition of the loan, that the buyer obtains a Lender’s Policy, or Lender’s Title Insurance, to protect the lender’s security interests in the property.
Homeowners insurance is the money you pay to your insurance company to keep your liability policy active, and your property protected against any liability issues.
The mortgage origination fee is the upfront fee owed to the lender for processing a loan. It covers a variety of things such as an application fee, processing, and underwriting of the loan.
The Appraiser will charge a fee for assessing the fair market value of the property. The value is used to determine the property’s loan-to-value (LTV) ratio.
Escrow prorates the taxes, dividing the taxes and other credits between the seller and the buyer. The seller pays their part of the bill up until the closing, including the taxes that have not been issued yet. And the buyer pays from the close of escrow and beyond.
To transfer ownership, escrow has to record legal ownership transfer documents and different kinds of deeds. Escrow prepares those documents and the recorder’s office charges fees for the service. One of the advantages of using Access Home Closing is that we offer a flat escrow fee that includes most of the recording fees.
When you record a deed, the county will require that you pay a transfer fee, in Washington it is called “real estate excise tax” or “REET”. Charged by the state or a local government, the transfer tax fee is assessed as a percentage of the sale price.
Septic fees are paid to a licensed septic inspector to assess the property’s septic system, and if negotiated, to pump out the system.
Typically, the seller will have to pay for those septic inspection fees, but it’s up for negotiation. Each county has specifics that must be addressed during the transfer of ownership. Our Access Home Closing Escrow Closers help navigate those nuances with the parties.
A property survey identifies the major buildings on the property, such as the house, garage, etc. And whether it intrudes on any neighboring properties or vice versa. A Lender may require a survey because they will want a certain coverage on the lender’s policy that covers things that a survey might disclose. If requested by the lender, a title insurance company will require that the parties get a survey to provide that coverage.
A home warranty protects the homeowner from major financial bills due to failure of certain appliances and systems.
There are many other closing costs that might appear at the home closing, such as HOA fees. It is best to try and educate your clients about what closing costs are and who is responsible for paying them. Hopefully, this checklist helps you establish a more clear and transparent process with your clients.