Closing Costs – Smlosing cost! What am I going to pay when I buy a home?

I often find that buyers and seller misjudge the amount of closing costs they will need to pay at closing. The amount buyers pay is primarily determined by their lender (Good Faith Estimate) which is based on the type of loan they are obtaining and their planned down payment. The costs that sellers will pay is much easier for a real estate agent to calculate in advance.

When I meet with a seller to list their home, we review the comps that I’ve prepared to discuss the listing price. I also prepare a Net Equity Estimate based on the potential selling price. This estimate allows them – and me – to see how much money they will receive or owe at the closing after the payoff of any mortgage or equity loans. Sometimes the news is positive and sometimes it’s not.

I have access to a computer program from Chicago Title that allows me to enter the key data, then the program calculates everything to derive a bottom line net number. So what are the costs?

County Property Taxes: In Ohio, we pay these taxes “in arrears”. For example, it’s now August. The taxes that were paid in Jun/Jul were for the second half of 2006. So if a closing were to take place the end of August, the seller would owe taxes for Jan 1, 2007 through the closing date in August. Even if the mortgage holder has been collecting the taxes on a monthly basis from the mortgage payment (escrow), the total amount will be due at closing. The lender will refund the escrow money 5-6 weeks after the closing when all the paperwork on closing out the mortgage is complete.

Sales Commission: This is the amount that the seller has agreed to pay the listing broker to market their home. Since it is normally a percentage of the purchase price, it will fluctuate with whatever price was agreed to by the seller and the buyer. The listing broker then pays the buyer’s broker from this amount. In turn, both brokers pay their respective agents a portion of each broker’s fee.

Conveyance Fee: The is essentially a tax collected by the county where the home is located. The amount varies by county and it is based on a percentage of the purchase price.

Home & Gas Warranties: These warranties – and the payment of them – is negotiated as part of the Purchase Contract.

Title Fees: These fees include such items as Title Exam, Title Insurance Binder, Closing Fee, Deed Preparation, and Delivery Fee. They will differ according to the title company that is used.Title Insurance Premium: In central Ohio, the seller pays this. (In some states, the buyers pay it.) It is based on the purchase price of the home. If the seller has owned the home for less than 10 years, the seller is entitled to a “reissue rate” if they can provide a copy of their previous title insurance packet. The discount rate is based on the price the seller paid for the home.Miscellaneous Fees: These may include any broker administration fees, or other expenses the seller and buyer agreed to in the Purchase Contract.Mortgage Payoff: This is the balance due on the current mortgage PLUS the per diem interest expense from the first of the month to the date of closing. Some mortgage holders also charge a fee for preparing the paperwork for the closing and closing the account. So keep in mind that you’ll be paying some amount more than the amount shown on your last balance statement. This also applies to any equity or line of credit loans against the home. (remember, equity loans are a lien against the home and must be paid off at closing).