What are Closing Costs and Why do I Have to Pay Them?
Buyer's Closing Costs?
Closing Costs are separate from down payment and are the buyers responsibility for the most part. They can be paid for by the seller when successfully negotiated. The term closing costs covers the following:
- Appraisal Fee
- Lenders Commission
- Interest Rate buy downs
- Title Company Fee to transfer ownership and handle the funds
- Title Insurance insuring the lender
- First year of property taxes
- First year of home owners insurance
- Any HOA fees due at closing
- First month of interest for the loan
- And a couple more small items
All these fees typically add up to 2.%-3% of your sales price. The higher the price the lower percentage because some fees are fixed. A good agent will negotiate in your behalf to have the seller cover most if not all of these fees. In some cases when a home has multiple offers the buyer ends up having to pay these fees. If money is short you can increase the interest rate by a quarter to a half of a percent in order to received a "lender credit" at closing which covers all these fees so you only need to have money saved for you down payment. If you are using a 0 down loan than you truly won't have to spend a dollar to but the home! There are four 0 down loans you can learn about here.
Seller's Closing Costs?
Sellers do have closing costs. At closing the title companies will get paid by you to transfer title, the state of Utah also requires a seller to pay for a "owners title insurance policy" to insure the title is free and clear of any liens or encumbrances for the next owner. These fees add up to about half a percent of the sales price.
This funny 2 minute 44 second animation perfectly explaines everything you want to know and understand about Closing Cost and where they come from...