How Are Closing Costs Calculated?

Closing costs are the fees paid when closing on a real estate sale or refinance transaction. Remitted at the time of settlement, these costs are those associated with the buying or selling of a home and exist outside of the down payment. Whether you’re a first-time or seasoned home buyer, it’s important to know what your closing costs will be when making your real estate purchase. Read on to learn what fees are included in closing costs and how those fees are determined.

What do closing costs include?

Both home buyers and sellers can expect to pay settlement costs at the close of the real estate transaction (when the property is officially and legally conveyed from the seller to the buyer). The details surrounding closing costs for both parties are contained within the Closing Disclosure (CD) form, a document remitted to the seller and buyer three business days prior to the closing date.

Buyer closing costs generally include:

-Loan origination fee (if applicable)

-Credit report review

-Home appraisal 

-Pre-paid mortgage interest (discount points)

-Private mortgage insurance (PMI) (if applicable)

-Homeowner’s insurance

-Recording fees

-Underwriting fees

-Courier fee

-Transfer taxes

-Title search and closing fee

-Title insurance

-Land survey (optional)

-Flood determination and elevation certificate (if applicable)

-HOA dues (if applicable)

Seller closing costs typically involve:

-Mortgage pay-off amount

-Property taxes

-Deed preparation

-Grantor’s tax

-Hampton Roads Regional Transit (HRRT) fee (if applicable)

-Settlement/Closing coordination fee

-Notary fee (if applicable)

-Home repairs/invoices (if applicable)

-Termite inspection (if, per contract, the seller is to pay)

-Home warranty (if applicable)

-Prorated HOA fees (if applicable)

-Prorated real estate taxes

-Prorated stormwater fees (if applicable)

-Real estate commissions

How are closing costs determined?

In general, closing costs for home buyers range between 3 – 6 % of the sale price of the home and may be affected by the sale price of the property, the geographic location of the home, and the home buyer’s credit standing, among other factors. These expenses may also vary based on the type of mortgage product selected and according to state or municipality.

Closing costs for sellers generally fall between 5 – 10 % of the sale price of the home, the largest of which is often the commissions paid to the real estate agents. Any remaining mortgage expense is paid alongside other seller closing costs. Seller expenses may also vary according to state or municipality.

Can closing costs be negotiated?

In some instances, home buyers and sellers may negotiate the terms of the real estate contract to include seller assists or concessions, which is where the seller contributes a specific amount towards closing expenses on behalf of the buyer. The total amount of contributable seller concessions allowed, however, may be dictated by the type of mortgage product for which the buyer has applied.

Do you have other questions about closing costs or the settlement process? Reach out to Linear Title & Escrow in Virginia Beach, VA today!

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