By Joel Wanjiku
Buying and selling real estate property comes with expenses above the property’s price. Common examples include property taxes, title insurance, and appraisal fees, among others. These expenses are known as closing costs, and they can add up to a few thousand dollars.
Every dollar counts, so it is important to understand how the various costs of buying and selling real estate property work. Here is a comprehensive guide on real estate transaction closing costs.
Real Estate Transaction Closing Costs for Buyers
Buyers are responsible for most of the closing costs in a real estate transaction. Common closing costs for buyers include the following:
· Credit Report Fees
Most lenders charge a fee ranging from $15 to $30 to pull and evaluate your credit report. Notably, you can incur this fee multiple times when lenders renew your credit review. However, some lenders don’t charge this fee.
· Loan Origination Fees
Loan origination fees cover the cost of processing your mortgage. The standard origination fee is 1% of the mortgage amount. However, some lenders don’t charge an origination fee.
· Escrow Fees
An attorney or escrow company collects and distributes the money for various closing costs to all parties involved in the transaction. An escrow fee is the money charged for this service.
· Processing or Underwriting Fees
Processing or underwriting fees are charges for processing and approving your home loan application. It is worth noting that they are distinct from origination fees.
· Property Appraisal Fees
A property appraisal refers to the process of assessing a property’s fair market value and determining your loan-to-value (LTV) ratio. Appraisers charge a small fee for this service. Notably, an appraisal is a standard requirement when applying for a mortgage.
· Attorney Fees
Attorneys charge a fee to process and review real estate transaction contracts. The charges can be based on a fixed or hourly rate.
· Home Inspection Fees
It is recommended to get a property inspected for problems such as pests, lead-based paint, and risk of flooding before buying. Professional inspectors charge varying fees for the service.
· Title Search Fees
Existing liens on a property and ownership disputes can complicate a real estate transaction. To this end, you must pay a title company to review and analyze all public property records for any discrepancies.
· Title Insurance
Unfortunately, title companies may miss existing discrepancies in a property’s title when reviewing public records. To this end, they charge a one-time insurance fee to protect the lender if a discrepancy arises later during the transaction.
· Recording Fees
Recording fees are related to title searches. They are not mandatory, but some county or city clerks charge a fee for processing public land records.
Real Estate Transaction Closing Costs for Sellers
Sellers are responsible for only a few of the common real estate closing costs. However, sellers can offer buyers credit for some of their closing costs through seller concessions. Overall, common closing fees for sellers include the following:
· Transfer Taxes
Transfer taxes are charges levied for transferring a property’s title from the seller to the buyer. The tax amounts vary from one jurisdiction to another and may be paid by the buyer or seller. However, it is also worth noting that some jurisdictions don’t charge transfer taxes.
· Title Fees
Title fees cover the cost of assessing public property records for discrepancies with the property’s title. While they are usually the buyer’s responsibility, the seller can also incur the charges.
· Attorney Fees
Real estate attorneys process transaction contracts for both buyers and sellers. To this end, sellers are also required to pay half of the fees and can choose to cover the entire fee.
· Escrow Fees
Escrow fees are the charges levied for collecting and distributing the money required to cover closing costs. Sellers can split the charges for this service with the buyer or cover the whole amount.
Conclusion
Notably, lenders are legally obligated to disclose all closing fees to the buyers and sellers several business days before the scheduled settlement date. Moreover, you should have enough money to cover the closing costs by the set settlement date; the transaction would be incomplete otherwise. As such, review your lender’s terms to understand the various closing costs and the exact amounts, or consult an accountant.
