Closing Costs - Explained
What are Real Estate Closing Costs?
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Table of ContentsClosing Costs DefinitionA Little More on What are Closing CostsExamples of Closing CostsLoan Estimate and Disclosure StatementNo-Closing-Cost MortgageAcademic Research
What are Closing Costs?
Closing costs refer to fees or costs paid in a real estate transaction at the point of closing the deal. Closing costs are paid by either the seller and buyer of a real estate at the point when the title of the property is transferred to the buyer. Closing costs are also described as the expenses paid by a buyer or seller over and above the price of the property. Examples of closing costs are appraisal fees, lender costs, title searches, surveys, title insurance, taxes, deed recording, and other related expenses.
How are Closing Costs Used?
Closing costs are calculated in dollar amount, these are expenses incurred when the title of a real estate is transferred from a seller to a buyer. While some closing costs can be negotiated, some are non-negotiable. Recording taxes or transfer taxes are charged by the state or municipal and are non-negotiable, while fees charged by lenders can be negotiated. Closing costs can also be incurred when a loan process is complete, such costs include loan origination fees, credit-reporting fees, discount charges, and others. By law, lenders are required to state prepaid costs to buyers, such laws include upfront expenses incurred by the buyer such as property taxes, homeowners insurance, and others.
Examples of Closing Costs
Closing costs vary from one seller to another, largely, these costs also depends on the type of property being sold and its value. The variance in closing costs might result from a discrepancy in taxes charged by different states and the sellers, for instance, local government authorities charge recording fees and certain taxes to record a property transferred from a seller to a buyer. Usually, closing costs can be paid by a seller or a buyer.
Loan Estimate and Disclosure Statement
According to the laws of different states, lenders are required to disclose the closing amount on the property. They are expected to give a good faith estimate of the costs within a few days of a loan application. Also, three days before the closing of the real estate transaction, a lender should give a closing disclosure statement to the buyer, which contains all the expected fees. All the obligations of lenders and sellers are contained in the Real Estate Settlement Procedures Act (RESPA).
There is a category of mortgage called no-closing-cost mortgage, such mortgage have no closing costs or upfront fee paid by the buyer. This type of mortgage helps a buyer reduce the initial cost or capital to be paid by the buyer. No-closing-cost mortgages offer a variety of benefits but often have higher interest since the closing cost is buried in the interest which the buyer pays over a period of time.