A Guide to Closing Costs, by Rose Jones, Branch Manager of North American Title, Pinnacle Peak
Once the purchase contract is fully accepted and escrow has been opened, the buyers and sellers next concern generally are “what are my closing costs going to be?” To help answer this question for your clients, listed below are the typical or general costs that are associated with a residential real estate transaction.
If you are assisting the seller in the transaction, the seller can generally be expected to pay for the following fees and charges:
• Owners Title Insurance Policy (Homeowners Policy of Title Insurance)
• Real Estate Commissions
• Percent of the Escrow and/or Settlement Charges
• Recording Fees — these would be charges that are applicable to documents required to clear items of record against the
• Payoff of any existing liens or encumbrances that affect the subject property
• Prorations for property taxes
• Unpaid property taxes
• Homeowners Association dues and assessments, if any
• Bonds and Special Assessments (Sewer, paving, etc.) as per the purchase contract
Depending on the terms and conditions as agreed upon in the purchase contract, the seller could also have the following additional fees and charges.
• Termite Inspection Fee
• One year Home Warranty
• Loan fees associated with the buyers new financing
• Transfer Fees for the Homeowners Association
• Disclosure / Inspection Fees for the Homeowners Association
• Septic Inspection
In trying to help determine for the seller his net proceeds realized at close of escrow, one item that seems to always bring up the most asked questions is on the payoff of any existing mortgages that the seller may have on the property. It is best to remind them that the outstanding principal balance is not the loan payoff. They could have a pre-payment penalty associated with the early payoff of the loan, which in some cases can be as much as six months interest. They also will owe interest on the unpaid balance since the last payment was made. In most instances, this amount is a full month’s interest. Depending on the amount of the outstanding loan, these two items can add several thousand dollars onto the payoff amount due at close. It is also important to discuss with the seller any information that they may have concerning the homeowners association and any applicable transfer fees due upon the sale of the property. In some areas, the transfer fee due to the homeowners association is based on the sales price of the home. This fee can be equal to one percent or one-half of one percent of the sales price. If you are assisting the buyer in purchasing a home, the buyer can generally be expected to pay for the following:
• Alta Lenders Title Insurance Policy
• Title Policy Endorsements as required by the lender
• Percent of the Escrow / Settlement Charges
• Recording Fees for all documents in the buyers name
• Loan fees associated with buyers new financing
• Termite Inspection Fee — unless otherwise agreed to in the purchase contract
• First year’s premium for Homeowners Insurance policy Depending on the terms agreed upon in the contract or the location of
the property, the buyer could be expected to pay the following additional fees and charges.
• Pro-rated Homeowners Association Dues or Assessments prepaid by the seller
• Pro-rated Fire Protection prepaid by the seller
• Home Warranty
• Transfer or Disclosure Fees to the Homeowners Association
Some of the above fees and charges could vary depending on the type of financing that the buyer will be obtaining at close of escrow. Should the buyer be obtaining either FHA or VA Financing, certain regulations determine what loan fees and charges are to be paid by the buyer and seller. As the purchase contract now requires the maximum amount that the seller is agreeing to pay towards these fees be stated, it is always best to research these fees with the buyers new lender so that it is clearly understood what the actual charges are going to be to avoid any conflicts when it is time to close escrow.
As each transaction is unique, so are the closing costs. There are numerous other items or situations that will determine the final outcome for the sellers proceeds due at close of escrow as well as the final closing figure for the buyers.