Who pays closing costs?

Typically, both buyers and sellers pay closing costs, with buyers generally paying more than sellers. The buyer’s closing costs typically run 1 to 2 percent of the sales price. Note: Earnest money is applied towards closing costs. Inspection fees are paid out of pocket by the buyer and not part of the closing costs.

The buyer’s closing costs typically include:

• Earnest Money (This is a “down-payment” due within 48 hours of going under contract. These funds are held in escrow at the Title Company. At closing, your earnest money will go towards your closing costs amount.)

• Loan-related fees

• Credit report fees

• Title search fee

• Lender’s title insurance

• Appraisal fee

• Recording fees

• Title & lender closing fees

• Survey fee (if applicable)

• Settlement fee (if applicable)

• HOA escrows

• Insurance escrows

• Property Tax escrows

The main closing cost for the seller can include:

• Fees for buyer’s title insurance policy

• Mortgage payoff and prepayment penalty (if applicable)

• Outstanding amounts owed on the property

• Seller’s attorney fees (if applicable)

• Transfer taxes and recording fees

Here is an overview of the types of closing costs you may see as a buyer on your settlement sheet.  If you are getting a loan, when you apply for it, you will receive a Loan Estimate that will break down and estimate these fees. If you’re not getting a loan your real estate agent can estimate the closing costs for you. On average, it’s best practice to plan for your closing costs to be 1-3% of your loan amount.

Lender Fees

Don’t be surprised by the costs you will incur at Closing

Loan Origination Fee: This fee covers the lender’s administrative costs in processing the loan. It is often expressed as a percentage of the loan. The origination fee is typically 1% of the loan, but remember, you can obtain a loan with no origination fee and a slightly higher interest rate.

Loan Discount: Often called “points”, a loan discount is a one-time charge to adjust the yield on the loan to what market conditions demand. One point is equal to 1% of the loan amount. This fee is rare when interest rates are low.

Appraisal Fee: This one-time fee pays for an appraisal, which is a statement of property value for the lender. An independent appraiser writes the appraisal and can charge $450 to $800, depending on the home’s size and location. You will probably pay this fee to the lender when they order the appraisal and not wait until closing.

Credit Report Fee: This one-time fee covers the cost of the credit report that is run by an independent credit reporting agency and is usually about $75.

Title Insurance Fee: There are two title policies: a lender’s title policy (which protects the lender against loss due to defects on title) and a buyer’s title policy (which protects you). These are both one-time charges. In our market, the buyer is only responsible for paying for the lender policy. The lender policy can cost around $600.

Miscellaneous Title Charges: The title company may charge fees for a title search, title examination, document preparation, notary fees, recording fees, and a settlement or closing fees. These are all one-time charges and can add up to about $600.

Lender Fees: Other lender fees include an underwriting fee, a flood certification fee, an amortization schedule fee, and other miscellaneous fees that your mortgage lender should disclose at loan application. These fees vary dramatically from about $450 to $900.

Prepaid Interest: Depending on the time of month your loan closes, this charge may vary from a full month’s interest to just a few days’ interest. If your loan closes at the beginning of the month, you will probably have to pay the maximum amount. If your loan closes at the end of the month, you will only have to pay a few days’ interest.

PMI (Private Mortgage Insurance) Premium: Depending on the amount of your down payment, you may have an up-front fee for mortgage insurance (which protects the lender against loss due to foreclosure) included in your closing costs. You may also be required to put a certain amount into a special reserve account (an impound account) held by the lender for PMI.

Beginning of the Escrow Account: Your lender typically has an account where your property taxes and property insurance funds are held. This account starts with taxes approximately equal to two months in excess of the number of months that have elapsed this year. (If 6 months have passed, they will collect 8 months of taxes.) Your property insurance is often collected one year in advance, plus two months will be kept in your escrow account.

HOA Fees

HOA Dues: If your property belongs to a homeowner’s association, they will likely collect dues at closing. They will collect prorated dues for the remainder of the current month plus the next months dues. This gives them time to receive your information as a new owner and set you up to pay your dues.

Working Capital: Some HOAs charge a working capital fee every time the property changes hands. Every HOA is different but if they do, it is generally 3 months of the current dues amount. It goes into the HOA’s reserve fund. When you sell you may receive a refund of that amount but that is not generally the case.

Location Fees

Transfer Fees: Also known as transfer taxes. Some areas in Summit County charge transfer fees. Who pays is negotiable in the contract. As a result, when you go under contract you should know if you are paying the transfer fee and how much it is.

Other Fees and Credits

Earnest Money Deposit: It is important to have an understanding of the earnest money deposit, so you will not be in an uncomfortable position when you purchase a property. When the seller accepts your offer, you will give your earnest money amount to the title company. They will deposit it in their escrow account immediately. They will hold it until closing. Then, you will receive a credit in your closing costs as a partial down payment and represents your intent to purchase the property. You should anticipate an earnest money deposit of 1-2% of the purchase price. In the event that you do not qualify with a lender for a new loan, you will receive a refund of your earnest money. However, that refund is only as long as we give the sellers written notice regarding the lender’s disapproval, and provided you have supplied the lender with all documentation they have requested.

Property Taxes: In Colorado, we pay property taxes in arrears. So, at closing, you will receive a credit from the seller for property taxes. The title company will prorate the amount for the number of days the seller owned the property. If you close on January 2, you will receive a credit for one days worth of taxes. If you closed December 31, you will receive a credit for 364 days of taxes. You will then be responsible to pay the tax bill in full when you or your lender receives it.

At Closing

For the closing, you must bring a driver’s license and a cashier’s check for the remainder of your down payment.  You can wire the funds if you prefer.

Aside from closing costs, buyers will also have a few out of pocket expenses should they so choose to do the following:

Earnest Money: ~1% of purchase price, goes towards closing costs, but required within 48-72 hours once offer is accepted

Home Inspection: ~$500

Sewer Scope: ~$150

Radon Testing: ~$150

Roof Inspection: ~$200

Structural engineer: ~$350/hour