We all know that buying and selling real estate is complicated. It takes a lot of people to make the process go smoothly, and those individuals do not work for free. Many of these professionals receive their pay when you close on your house. What payments are collected during closing? What is the process of how to buy a home?
Typical Closing Costs for Buyers
Mortgage Origination Fees
You will pay your mortgage company a fee to cover the costs associated with taking out a loan. Your mortgage company will have had to check your credit history and will have verified your employment status before they allowed you to borrow money. This process takes time, and you may have to pay part of the costs associated with it.
If you have to borrow money to purchase a home, your mortgage company will require that the house be appraised. Your lender needs to make sure the house is worth what you are paying for it, so if you default on your loan, the company can sell the property to get back what you borrowed for it.
You may choose to pay a flat fee to get a lower interest rate on your loan. Should you decide to do so, you may purchase these “discount points” during closing. Purchasing discount points may enable you to enjoy a lower monthly payment.
Although sometimes paid by the seller, title insurance is a necessary one-time purchase that protects the buyer from purchasing a property that has a lien.
Private Mortgage Insurance
If you were not able to save up enough cash for a 20% down payment, you might need to purchase Private Mortgage Insurance. This fee is added to your monthly mortgage payment each month, but you will need to start payments during the closing process.
No one can overlook the valuable contribution a home inspector gives during the buying process. You inspector looks closely at each of the home’s major systems to determine whether all is well with the house.
Typical Closing Costs for Sellers
Real Estate Transfer Fee
Although this fee, or tax, varies in amount from state to state, most sellers will have to pay some sort of transfer tax during the closing process. This money is shared between state and local governments to officially record the transfer of ownership of a piece of property.
Not to be confused with the escrow account that holds funds for your property tax and home insurance payments, escrow fees are collected at closing to pay for the third-party company that helps during the real estate transaction. This company holds the money until the transfer of ownership is completed.
Real Estate Agent Commissions
Especially in a buyer’s market, the seller is usually in charge of paying for the real estate agent commissions during the closing process. Typically, the listing agent receives 3% of the cost of the home, and the buyer’s agent gets another 3%.
The seller may be able to save money by working with a discount real estate agent. These professionals will offer their services for between 1 and 2% of the purchase price of the home.
Buying and selling a home is an expensive process. Go through all the closing costs with a fine-toothed comb to see if you can save any money during the process.