Real Estate Closing Costs | What Buyers, Sellers Can Expect To Pay.
Real estate closing costs, what are they, how much are they?
What are the buyer and seller expected to pay when a property listing gets sold? This real estate blog post covers what happens in my hometown in the state of Maine. It is not a broad brush absolute who pays what to cover the country regarding the topic of “closing costs”.
Many areas across America have even more items under the heading of “closing costs” that add to the fees to buy, sell, trade.
Where I list Maine properties for sale, we don’t have home owner’s associations that require certain extra fees. There is one property tax a year, not several. And it includes the state, county, local portion in the one tax bill. I know, I know it is not that way in other lands where we don’t peddle properties day in and out.
Sometimes a lake home or cottage has a road dues fee assessed annually but even that is usually a voluntary contribution. It is a lot simpler living in small town Northern Maine! Lower prices, less people, simpler living in Vacationland.
This blog post will look at real estate closing costs in a typical Maine home sale to hit the highlights.
To get you in and out quickly. We know you are pretty busy! You just want to know what should I expect to pay to along the way and to make sure you have enough budgeted for the closing cost expenses. So you can sleep nights and be assured you are getting a home bought or sold which is very exciting life news.
The score sheet to keep track of the two sides of the real estate sale transaction is the ever evolving HUD-1 settlement statement for buyer and seller costs. Closing costs for sellers land anywhere from six to ten percent of the home’s sales price. It’s not cash out of the pocket usually but instead expenses subtracted from the profit bottom line gross on the home sale. Unless the home seller is upside down, owes more than the property is worth and has to shell out the difference. Or moves on to a short sale situation which is another topic for another real estate blog post where the seller has no money to settle up the difference. No equity in the home means you better find a way to make up the shortage for the “clear to close memo” to circulate. For everyone to line up for the dot the “I”‘s and crossing the “T”‘s before sliding the house keys across the highly polished conference room table.
Real estate buyers worry they won’t have enough to close the home sale. Because even though a bank or mortgage company lender of the loan has to by law provide a good faith estimate of what all this is going to cost to be in compliance with truth in lending regulations. The typical home buyer is still scared what if I don’t have enough at the tail end real estate closing to cover expenses? They want the house, their family is counting on them to make it happen. They badly want to stop renting, start owning. But worry about closing costs, what is it going to set me back buying a home. That is bitter sweet, exciting and scary mixed together.
So down and dirty, what is the buyer looking at for closing costs in a real estate sale?
The application fee for credit check and home appraisal fee, the down payment, any loan documental origination fees, pre-paids like interest, the escrow to get the monthly property tax and property insurance premium added into the house payment. Don’t forget the title insurance for the lender and the buyer’s owners policy if they desire, along with the abstract of title search, any any other legal fees. Then on to registry of deed recording fees, the transfer tax that both the buyer and seller are expected to pay at the local registry of deeds.
What is the seller looking at for closing costs in a real estate sale?
The existing mortgage and any back year along with the recent year real estate property taxes. Those need to be paid off by the seller and verified that they have or no real estate closing. Everything stops like not having a property insurance binder in force. The title to the property can not have any liens or encumbrances that keep the lender from using it for collateral on the home loan either.
The real estate commision for the broker / agent in the transaction is customarily paid for by the seller and the property owner has a transfer fee to record the deed, discharge of the mortgage and any releases that keep the title from being squeaky clean free and clear.
Sometimes to get a lower interest rate so the home buyer qualifies for the mortgage loan, the seller will agree to pay points.
The cost of money is key to whether the buyer can afford the house or not. Money up front shelled out to discount the mortgage interest rate. To get a more favorable home loan interest rate. And money from the proceeds can be allocated by the seller to pay some or all of the buyer’s closing costs in cases where the purchaser has the credit, the job, okay debt ratios but just lacks a down payment to fill in the blank on his or her side of the settlement statement for real estate closing costs.
There is a lot of pressure and many ticking deadlines to meet in a real estate transaction.
The six to eight weeks a typical home sale mortgage loan process takes is a critical period for everyone in the transaction. The home buyer pays between two to five percent of the home purchase price in closing fees. I have seen estimates of roughly $3700 in real estate closing fees as an average number batted around on the Internet survey results. But remember, title insurance is based on the loan amount so higher priced real estate markets mean steeper closing costs. Mortgage insurance, property insurance policies all increase with the listing and real estate sale prices when they rise.
Let’s face it, the purchase and sale of a Maine home or other property is usually the largest financial transaction most of us ever make right?
Buying, selling real estate is not a daily occurence so it can be a nerve racking, daunting task because we’re talking some big numbers. But on top of inflation and rising market property values, there are costs associated with the home ownership transfer. It can be kept simple or become complicated with layers of players and they all look to be paid from the closing cost settlement proceeds. They want a check cut with their name on it spelled correctly. Most get paid whether the actual real estate closing happens or not because like most things in life there is a fee for services rendered. Even in real estate sales that fail and don’t have a happy ending.
So real estate buyer and seller closing costs, they are expenses paid upfront or usually at the time of the title transfer of property which is called a closing.
Both sides of the real estate transaction have fees that the buyer and seller are traditionally expected to pay. How many fees, how expensive the closing costs depends on the size of the sale price for the property, the financing involved unless it is a cash sale, any corrective title or appraisal issues, and the repair costs to get the loan underwriting approval. There are other factors that can be lumped in under the term “closing costs” that depend on each and every individual real estate sale situation. Some costs are demands the buyer or seller add to the cost of the sale or there won’t be a closing.
So the garden variety real estate closing costs, what are they? Let’s take the case of the first time home buyer because typically this left hand side of the real estate transaction settlement sheet usually has the greater number of closing costs expenses by far than the right one where the seller costs are itemized neatly.
The buyer’s real estate home buying closing costs start with the earnest money deposit given to the broker to place in their agency trust account to “hold it” on layaway.
The deposit is credited at the closing and comes back into the settling up process. It is money parked to show good faith the home buyer is serious about buying your house. Pending the bank lender checking the credit score, verifying the debt ratios, you have a job, that the house is loan worthy, etc. The lawyer or title company selected examines the title to the real estate under your home looking for liens, right of ways, heirs that did not sign off in the title or old undischarged property tax liens, etc.
The loan program underwriting requirements could limit the amount the seller can contribute to a buyer’s closing costs to up to say no more than six percent of the home sale price. Unless the home seller agrees to take on some of the buyer’s real estate closing costs upfront, the purchaser is looking footing the bill of bank mortgage lender application fee. This fee covers the hard copy of the credit check, is a little something to pay the appraisal fee. The appraiser gets paid whether the home value or condition report meets lending standards or not.
The list of buyer real estate closing costs items continue with any property repairs or updates the appraiser high-lights in his or her valuation report.
The GFI electrical outlets in the kitchen and bath, the peeling paint removal and add a fresh layer coating, stair railing to the cellar, fixing the front steps all are closing cost tasks someone has to roll up their sleeves and tackle for the home loan to move forward to the real estate closing.
The first year’s home owners property insurance premium paid in full receipt can be a banking requirement at the real estate closing. Or the “kitty”, the escrow account set up to add the monthly cost of property insurance, the one twelfth of the yearly property taxes to the amortized loan payment schedule. The bank mortgage lender may require a certain number of months ahead squirreled away by the home buyer to have enough escrowed to cover the annual check for insurance and property taxes.
What else can add to the real estate closing costs?
When there is an estate sale and probating, the process to round up the assets and communicate with all the heirs can add to the seller’s side of the closing costs.
If there is an owner financed real estate sale which often times land is conveyed without a bank, without total cash, the mortgage and promissory note to secure the real estate adds to the closing costs for the buyer. To resolve a boundary dispute that comes up because of a bank mortgage inspection survey, the seller may have to do some house keeping and swapping of land to remove an encroachment or deal with an easement situation they had no knowledge of until the surveyor set up the transit and shot the metes and bounds lines with all the technical minutes and degree calculations.
So much of Maine is large sized and unpopulated so surveys down to the inch are just not needed.
Real estate closing costs for buyers and sellers of property in Maine. This blog post is a work in progress and more information will be added, the copy updated as the situation changes regarding closing costs for buyers and sellers of Maine real estate property listings.
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MOOERS REALTY 69 North ST Houlton ME 04730