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Closing costs are the fees that are charged by lenders and third parties related to the purchase of a home. What exactly makes up closing costs? Below is a break down of the different components:
- Escrow/Attorney Fees: Some states require third party escrow companies handle real estate closings while others allow attorneys to perform the function. Title companies, title agents, lenders, brokers, and real estate agents are allowed to handle closings and/or escrows depending on the state. These fees are usually split between the buyer and the seller.
- Title Insurance: There are usually two types that need to be purchased-the lender’s policy and the owner’s policy. The title company or a lawyer will research the title to ensure there are no liens against the property or unidentified owners. These policies protect both the lender and the new owner for the full value of the property. In most cases the seller pays for the owner’s policy and the buyer pays for the lender’s policy.
- Transfer or documentary taxes: These are paid either to the state, county, city, or a combination depending on the state. The government agency gets their piece of the pie during this transaction. This is also called a reconveyance tax.
- Recording Fee: Paid to the county for recording the deed, which shows ownership of the property.
- Settlement or closing fee: This is usually split between the seller and the buyer and it covers the costs charged by the escrow company, lawyer, or whoever handles the transaction’s financial transfers.
- Brokerage Commission: The fee you contractually agreed to pay for the selling of your home.
- Pest Inspection: Most lenders require a pest report to ensure the property is in good condition. This fee is usually paid by the seller and they may be responsible for fixing areas that have been damaged by termites, carpenter ants, dry rot, fungus, etc. In many cases these repairs can be negotiated.
- Septic Inspection: If you have a septic tank, the sales contract will likely require you to have it inspected.