Closing/Settlement
What are Closing Costs?
Closing costs are fees associated with the transfer of ownership of a house that are paid at closing. These costs do not include the purchase price of the home. Rather, they are the extras – fees and expenses aside from the purchase price.
On average, closing costs range between 3% and 6% of the total loan amount and can add thousands of dollars to the cost of a home, so it is essential to know what to expect. RESPA (Real Estate Settlement Procedures Act) requires lenders to disclose information to potential customers throughout the mortgage process. Lending institutes must fully inform borrowers about all closing costs, lender servicing and escrow account practices, and business relationships between closing service providers and other parties to the transaction.
Under RESPA, at the time that you complete the loan application, a lender is required to give you a good faith estimate that lists all fees you're likely to pay at closing. Keep in mind that these are just estimates and actual closing costs may be more than the good faith estimate.
Who is responsible for Closing Costs?
Buyers and sellers both pay closing costs. However, the exact amounts paid can vary significantly from area to area and depending on what agreements the buyers and sellers come to in the offer-counteroffer process.
Typical Buyers' closing expenses include: fees associated with obtaining a mortgage; inspection fees; homeowner's insurance (must be prepaid for one year at closing); portion of property taxes and transfer taxes, if there are any; title insurance and closing fees; and attorney's fees (if and where attorneys are involved in the transaction).
Typical Sellers' closing expenses include: loan payoff fees; real estate commission; title insurance; cash payments in lieu of repairs to the property; portion of property taxes and transfer taxes, if there are any; attorney's fees where applicable; and other fees negotiated during the transaction.