Wednesday, January 6, 2016

Breaking Down Closing Costs

Closing costs are any costs related to completing a real estate deal. These costs include bank fees related to obtaining a mortgage and outside fees such as appraiser and title search fees. Both the buyer and the seller are subject to closing costs, and the closing process can be confusing for first-timers, who are often unprepared for the amount needed to take care of these fees. This guide will help you plan so that you can avoid surprises when closing time arrives.

The actual amount of closing costs will vary depending upon the total cost of the purchase. In general, the buyer can expect to pay two to four percent of the purchase price, while the seller should budget for somewhere between eight and ten percent of the final selling price. The buyer will be required to pay a larger amount if the final cost is over one million dollars. In this case, a mansion tax applies to the purchase. The seller typically pays more because they are responsible for broker fees, which normally amount to six percent.

Costs to the Buyer
The buyer is responsible for title insurance and bank fees connected with the mortgage, which will include the bank's attorney fees and an appraisal of the property value. Other costs include title insurance, a mortgage tax, and attorney fees for a lawyer to represent your interests in the deal. The buyer is also responsible for the developer's costs if needed and an additional mansion tax if the purchase price exceeds one million dollars.

Costs to the Seller
One of the biggest expenses for the seller is the brokerage fee. These costs can sometimes be negotiated, but rarely do they fall below five percent. The seller must also cover a transfer tax that ranges between 1.4 percent and 1.825 percent, depending on the final selling price.

Saving on Closing Costs
At times, there may be opportunity for both buyer and seller to save money on closing costs. For the buyer, buying a nearly new home, rather than completely new, will help eliminate the developer's costs. The seller can save money by shopping around for the best rates on broker fees. Real estate attorney fees can also vary by a few hundred dollars, so shopping around for the best deal will save money. There is also a chance to work on splitting certain costs between buyer and seller, especially if the seller is still paying off a previous mortgage on the property. This kind of deal will normally save money for both parties.

It is better to budget toward the higher end of expected closing costs so no surprises arise on the day of closing. By knowing what to expect in advance, you can take time to look around for the best possible fees available. An experienced lawyer who specializes in real estate can also be your best resource when it comes to lowering costs. It could save you hundreds, if not thousands, of dollars in the end.