What are closing costs?
Closing costs are the fees and expenses involved in a real estate transaction. Depending on contract details and lender fees, they can vary widely.
Buyer’s closing costs
- Closing costs for homebuyers typically range from 2% to 5% of the sale price. Buyer’s closing costs may include, but are not limited to:
- Loan origination fee – a fee charged by a lender for processing the loan documentation
- Underwriting fee – a fee charged by the lender for verifying all the documents to finalize the loan
- Discount points – (optional) a fee charged by the lender if you choose to purchase a lower interest rate for the life of the loan
- Appraisal fees – the cost to have an appraisal completed (An appraisal is required to verify the market value of the home.)
- Credit report fees – expenses a lender incurs when checking your credit, so you can qualify for a mortgage
- Inspection fees – costs for home and/or pest inspections a lender may require for mortgage approval
- Lender’s title insurance – the fee for the policy that protects the lender in the event of any title issues
- Survey fees – the cost to have a survey of the property completed (Surveys confirm the size and dimensions of the land and verify that the property is free of encroachments.)
- Settlement fees – Real estate closings are usually facilitated by Attorneys or Title Agents. This fee covers their costs.
- Escrow deposits – an initial deposit to fund your escrow account. (The amount is calculated based on how much will be needed to pay for property related costs such as property taxes and homeowner’s insurance to be paid from the escrow account.)
- Recording fees and transfer taxes- fees paid to the local authorities for recording your purchase and mortgage in the public records
- Prorated taxes & HOA assessment dues – Prorated credits are given for prepaid taxes and HOA assessments. (The buyer reimburses the seller for the taxes and HOA assessments paid for in advance.)
Seller’s closing costs
- Sellers responsibilities include just a few items, but they are significant items.
- Recording fees and transfer taxes- fees paid to the county for recording the transfer of the deed
- Prorated taxes and HOA assessment dues – Prorated credits are given for unpaid taxes and HOA assessments. (The seller pays the buyer for the taxes and HOA assessments owed during the time they owned the home.)
- Title insurance premiums – It is standard practice in Central Florida that sellers are responsible for the expense of the owner’s title insurance, which protects the new owner in the event that title issues are discovered post-closing.
- Title search fees – a fee to run a background check on the chain of title to search for title defects or existing liens on the property
- Home warranty premiums – (optional) Sellers often offer to purchase a one year home warranty to provide buyers with peace of mind.
*Note that these fees and who is responsible for paying them can vary based on your location and contract details. Check with your realtor for details.