Congratulations! With the help of your Realtor® you’ve managed to put in a winning offer for a home. However, in addition to your down payment there are closing costs that you’ll have to pay to complete the transaction – at closing.
What are Closing Costs?
Closing costs are all the fees and expenses associated with the closing of a real estate transaction. A real estate transaction is a complex process and throughout your transaction, third parties have performed services. These include your real estate agent, your mortgage lender, your escrow company, etc.
The fees for these professionals are included in your closing costs and are in excess of the purchase price of the property. Closing costs typically range from 3% to 6% of the property’s purchase price* depending on a number of factors. Both buyers & sellers are subject to various closing costs.
Buyer Closing Costs
As a buyer, your closing costs may include but are not limited to:
- Loan origination fees – This is a fee your lender charges for processing your loan paperwork.
- Credit report fees – Your lender will check your credit to see if you qualify for a loan.
- Inspections fees – A home inspection and termite inspection are recommended and may be required by your lender.
- Discount points – You may opt to pay this fee in exchange for a lower interest rate.
- Appraisal fees – An appraisal will be required to verify that the sales price of the home is justified.
- Underwriting fees – These cover the cost of evaluating your loan application.
- Lender’s title insurance – This is a title insurance policy that protects the lender.
- Escrow fees – Fees charged by your title company to process your closing.
- Prepaid fees – You’ll likely be required to pre-pay some month’s worth of taxes & insurance. Also your HOA usually requires some pre-paid HOA dues.
- Recording fees – Paid to the county for recording the deed.
Seller Closing Costs
Sellers typically have fewer items to pay for than buyers, but that doesn’t mean that they get off scot free. Their closing costs include:
- Real estate commissions – Sellers pay real estate commissions to both the listing agent and the buyer’s agent. Commissions are typically 6% of the purchase price. This expense alone could add up to more than the combined closing costs that the buyer pays.
- Existing loan payoff – This is the payoff of the seller’s existing home loan.
- Owner title insurance – This policy protects the owner in case there are any title issues that come up. This policy typically costs more than the lender’s policy that the buyer pays for.
- Transfer and recording fees – These are fees that the county imposes for the transfer of the property’s title.
- Prorated taxes – In Arizona property taxes are paid in arrears. Sellers have to compensate buyers for the taxes they will pay for the months before they became the owners.
- Home warranty policy – As part of the contract negotiations sellers may be asked to provide a home warranty for the buyers.
- HOA transfer fees – Sellers typically pay an HOA disclosure fee and may be asked to pay a transfer fee as well.
- Repair costs – Sellers will have to pay for any repairs that they agreed to during negotiations. These can be minor repairs or costlier ones such as roof and AC repairs.
Although closing costs can be expensive, the key is being prepared. Your lender is required to provide you with a loan estimate that will outline the estimated costs of your loan. Sellers can get a payoff amount from their lender, and buyers & sellers can get a list of fees from the title company that will be used.
Contact The Donnelly Group!
Whether you are buying a home or selling your home in metro Phoenix, contact the Donnelly Group at 480-792-9700 or by email. Our team will help you navigate your way through what can be a complicated process.