What Are Closing Costs

Many buyers frequently ask the question, “how much are closing costs?” Buyers can estimate that closing costs will be between 3 and 5 percent of the purchase price of the home. The exact amount varies depending on a buyers financials, how much they’re putting down and the loan type. Even fees vary from lender to lender, and among title companies. Perhaps more important than how much are closing costs, is understanding what are closing costs. I sat down with Candice Hildebrand of North American Title earlier this week to clear up the confusion.

Buyers are provided with three different documents that detail closing costs. The Loan Estimate (LE) and the Closing Disclosure (CD) are provided by the lender, and these only show items paid by the buyer. The title company provides buyers with a Settlement Statement. Unlike the LE and CD, this document details debits and credits to the buyer and seller. Below is a break down of common line items found on the Settlement Statement.

Financial – This section breaks down the sale price of the property, the loan amount and the seller credit (any seller contribution to closing costs.)

Prorations/Adjustments – This is where you’ll see prorated calculations of HOA dues and taxes that may have already been paid in full, or are still due in full. If the seller has already paid the HOA dues, they owe the buyer money. The buyer will pay taxes at the end of the year, and the seller owes the buyer for any time they owned the home.

Loan Charges – This is prepaid interest. Basically, with a mortgage, interest is paid in arrears; so, at the time of the first principal payment, there will be delinquent interest. So, it is prepaid at closing.

Other Loan Charges – This section has fees related to items required by the lender. The survey is the most common.

Title Charges and Escrow/Settlement Charges – Fees charged by the title company are found in this section. The escrow fee is the title companies fee for services rendered. Also, the lender title policy is found here. This is paid by the buyer usually, and include the T documents (T-10, T-30, and T-36.)

Commissions – This is my favorite line item! Just kidding. The commissions earned by each brokerage are noted here, and are paid by the seller.

Payoffs – This is the large sum of money going towards any mortgage balance the seller might still have.

Miscellaneous – This section has line items for homeowners insurance, a home warranty, and any adjustments for the HOA transfer or annual fees. The owner’s title policy is often paid by the seller, and noted here.

I realize this is a lot of boring information that doesn’t mean a lot without the document right in front of you! That’s ok. When you’re ready to buy, and you finally get your disclosing documents, you can reference this page for clarification. Or better yet, give me a call! I’ll talk you through it.

When you’re ready to buy a home or condominium, think of me. I can be reached any time, day or night at 832-513-9931.