Buyer Closing Costs
You'll likely be responsible for a variety of fees and expenses that you and the seller will have to pay at
the time of closing. Your lender must provide by law a good-faith estimate of all settlement costs (HUD-1). The title company or your attorney conducting the closing will tell you the required amount for:
- Down payment
- Loan origination
- Points, or loan discount fees, which you pay to receive a lower interest rate
- Appraisal
- Credit report
- Private mortgage insurance premium
- Insurance escrow for homeowner's insurance, if being paid as part of your mortgage payment
- Property tax escrow - Lenders keep funds for taxes and insurance in escrow accounts that are paid with your mortgage. When your taxes/insurance come due in the future, your lender pays the insurance or taxes for you. The normal is usually 3 months in escrow.
- Deed recording
- Title insurance policy premiums (buyers portion)
- Notary fees
- Document Prep Fees/FedX Shipping Fees
- Closing itself at the title company
A Note About Prorations - Because some buyers closing costs are paid on a monthly or yearly basis, you might have to pay a bill for services used by the sellers before they moved. 'Proration' is a way for the sellers to pay you back or for you to pay them for bills they have paid in advance.
For example, if your association fees are $100 per month, the seller paid those fees up to the end of the month which is the 30th. If you close on the 27th, you would owe the seller for 3 days of association fees which he has paid in advance. (30-27= 3 OR $100 divided by 30 = $3.33 X 3 days = $9.99) The bill is 'prorated' for the number of days in the month, and then each person would be responsible for the days of his or her ownership.
A FEW NOTES ABOUT CLOSING - You must bring a certified or cashiers check to closing payable to yourself (your name) and then endorse the check over to the title company. You must bring your drivers license as identification. You must also bring a paid one years homeowners insurance policy (if applicable) with you that will be given to the lender at closing. If you are bringing a larger down payment to closing (over $50,000) you will be required to wire transfer the funds. THERE ARE NO EXCEPTIONS.
These buyers closing costs are customary for the State of Illinois. Obviously if you are in another state, customary charges could be different.
Cook County Tax Prorations
Seller Closing Costs
GREAT list Lynn, unfortunately in STRONG BUYER markets I am seeing the buyers wanting the SELLER to pay for so many of THEIR costs. It is depressing!!!
Great informative post. No matter how you break this all down, buyers often are surprised at how quickly these costs add up.
And this is why we try to negotiate these hard dollar costs as seller contributed, if we can ;-) (Sorry Gary, we do try!) Either that, or buyers should be aware of these fees. On some of our REO's we have them advertising 3% seller paid closing costs. And that's what they're talking about, you "summed" it up nicely.
Lyn....great info. Glad that you are addressing pro rations. It's a huge deal in Illinois! Very good of you!
Gary: On most REO's the buyers are asking for closing cost help. It used to be a rare occurance but not any more.
Todd: Always be prepared with enough information (it's the boy scout motto too).
Carla: Fannie & Freddie REO's are all offering 3 points paid with owner occupied contracts. Sometimes they are even throwing in a warranty also.
Larry: The most confusing part of the contract & cost calculations. In Cook County it's even more confusing.
Asking for buyers closing costs is not uncommon in our market. I know that when the market finally changes, the buyers will be spoiled. I remember adding the costs onto a full priced offer. Wouldn't work any other way.
Lyn: No matter how many times we go over this, it can never be too many! Buyers (and sellers) get confused and nervous ... so having a guideline such as this is extremely helpful. Prorations in particular just seem to boggle the minds of many buyers, so having an example and some math right in front of them within your post helps clear the mind and straighten it out in their minds. Like I said, this can never be addressed too much ... great job ... and thanks!
Gene
great information!
Excellent information here for buyers, who often don't take into account the many costs that add up when they find the home of their dreams ...