Here’s a list that explains real estate closing costs in layman’s terms. I’ve also tried to identify who pays what and who’s making you pay it . This is for Massachusetts, your state may differ.
Contact Mike Hunter at 978-580-1069 to learn more about how we can help you Sell with Confidence.
- Title service cost(s), paid by either party according to the contract, for title search, title insurance, and possibly other title services. In some cases the attorney may do the title search or the title service and attorney fees may be combined. Required by institutional/commercial lenders and often by the real estate contract.
- Attorney fees, paid by both parties. Massachusetts is a two-step contract state and you really need somebody on your side who knows the dance moves. Required for sellers to prepare the deed and conduct the transaction. Required for buyers by lenders to handle their money and conduct the transaction.
- Recording fees, paid by either party, charged by a governmental entity for entering an official record of the change of ownership of the property. Required by the government for recording the deed. They’re quite expensive in Massachusetts.
- Document or Transaction Stamps or Taxes, paid by either or both parties depending on location (area of jurisdiction), charged by a governmental entity as an excise tax upon the transaction. Required by law. Currently and has been for a long time $4.56/1000 in Massachusetts.
- Survey fee for a survey of the lot or land and all structures on it, paid by either party, to confirm lot size and dimensions and check for encroachments. Required by institutional/commercial lenders.
- Brokerage Commission, paid by the seller to a Real Estate Broker, to compensate the Broker(s) involved in the sale for their services in marketing the property, finding a buyer, and assisting in the negotiations. Brokerage commissions are usually computed as a percentage of the sale price. They are established in a listing agreement between the seller and the listing broker. The listing broker may offer Buyer Agents a portion of their commission as an incentive to find buyers for the property. Payment is required if real estate brokerage service was used. This is often one of the largest and least transparent of the closing costs.
- Mortgage Application Fees, paid by the buyer to the lender, to cover the costs of processing their loan application. In some cases, the buyer would pay the lender the application directly and prior to closing, while in other cases the fee is part of the buyer’s closing costs payable at closing.
- Points, paid by the buyer to the lender. Points are a form of pre-paid interest, charged by the lender as an alternative to charging a higher rate of interest on the mortgage loan. One point equals one percent of the loan principal.
- Appraisal Fees, usually paid by the buyer, charged by a licensed professional Appraiser. Many lenders will require that an appraisal be performed as a condition of the mortgage loan. The purpose of this appraisal is to verify that the sale price of the property (upon which the underwriting of the loan is based) is equal to or less than the fair market value of the property.
- Inspection Fees, usually paid by the buyer in Massachusetts (although occasionally by the seller), charged by a licensed home, pest, or other inspector. Some lenders require inspections (such as termite inspection) to verify that the property is in good condition. This is necessary to assure that the property can secure the mortgage loan.
- Home Warranties,paid by either the buyer or the seller. Warranties are available on resale homes insuring major household systems against repair or replacement for the buyer’s initial year of ownership. Sellers will sometimes offer these warranties as a marketing strategy or buyers can elect to purchase them at closing.
- Pre-paid Property Insurance, paid by the buyer but may be reimbursed by the seller. Lenders will typically require that a mortgaged property be insured at all times throughout the life of the mortgage, and will usually require that the first full year’s property insurance premium be paid in advance by the buyer. If the buyer has not already paid the insurance company directly, this would become another closing cost payable at closing.
- Property tax adjustment, paid by the seller/the buyer or both. Massachusetts towns are funded by assessing taxes on real property which are usually payable at a specified date annually. Since all but a few real estate transactions close on a date other than that date, most transactions must include an adjustment to assure that both the seller and the buyer end up paying their share of the annual property tax, proportionate to the percentage of the year that each has ownership of the property. Usually required by institutional/commercial lenders and by the real estate contract.
- Homeowner Association Dues/Escrow adjustment, paid by the seller, buyer or both. If the property is covered by a Homeowner Association (HOA), the HOA will normally be funded by dues assessed against each property owner. Again, since the ownership of the seller and buyer are each fractional in the year of the transaction, there must be an adjustment made so that each owner pays their proportional share. There may be also a kitty that the buyer has to kick in a couple months fee which the HOA has been holding and they will return to the seller. Often required by institutional/commercial lenders and by the real estate contract.
- Interest adjustment, paid by the buyer but may be reimbursed by the seller. The monthly mortgage payment is calculated and payable on a specified day each month. If the closing does not actually fall on that day then an adjustment is made to calculate the interest on the loan for the number of extra days until the first payment is due.
If you like this you’ll like Mike Hunter, the House Hunter as your Realtor even better. He knows the Sudbury market and has represented many happy Sudbury households to buy or sell for years. Please feel free to forward his profile to others you feel would benefit from his services. Call Mike 978-580-1069 today.
