Closing costs seem to be somewhat of a vague term no one really understands. Simply put, it’s just a bunch of line item expenses you have to pay when you buy or sell your home, right? But, do you really know what you’re paying for? What qualifies as a closing cost, and how can you reduce this expense? This guide will help you deal with navigating closing costs, and will even help save you some money.
What are Closing Costs?
Closing costs are expenses you pay when you purchase or sell your home. Some closing costs the seller already paid ahead of time. So, the buyer “reimburses” the seller on the day of closing. For example, utilities or HOA assessments are sometimes paid in advance by the seller.
Some closing costs are items paid in arrears. So, the seller actually pays a pro-rated amount for their time of ownership. For example, real estate property taxes for this year are typically paid next year. When the taxes become due next year, the buyer will pay will pay them in full. At closing, the seller pays the buyer for their time of ownership.
Other types of closings costs include loan origination fees, title insurance, utility pro-rations, settlement fees, and deed recording fees.
How Much Are Closing Costs?
This can vary wildly from one transaction to the next. The real cost depends on customary norms for the market, the price of the home, and even the time of the year. In a typical home purchase, Buyer’s usually pay more due to customary norms, such as paying for their own title insurance. But if the closing date is late in the year, the seller pays more towards property taxes because they owned the home for the majority of the year.
Because each home purchase is unique, it’s important that you find an agent that can help estimate these costs for you.
Reducing Your Closing Costs
One of the easiest ways to reduce your closing costs is to choose a Transactly partner agent. Our partner agents provide up to a 1% buyer commission rebate in most states. This means the agent reduces commission owed to them, and instead gives that to you. Then, you can use this extra to money to help pay for closing costs on the day you purchase your home.
Another way is for the buyer to negotiate the seller paying a portion of their closing costs. A buyer could ask for a credit from the seller at closing, or ask the seller to purchase the title insurance policy instead of the buyer.
Lastly, shopping title companies will identify the amount of title fees charged by each one. This will assist with selecting a title company that is fairly priced for their services.