Closing Costs versus Cash-To-Close
Real Estate Closing Costs versus Cash-To-Close
Buyers most always ask the question what are the closing costs?
Seems like a simple question but, usually what they are really asking is how much cash will I need at the closing table?
Simply, a cost is an expense item paid in return for something. Literal closing costs are usually fees and expenses that are related to the actual closing of the transaction e.g. settlement agent or attorney, title insurance (for the homeowner and perhaps for the lender if a mortgage note is obtained), recording fees, statutory fees – (i.e. taxes), and more.
The fees do vary and there are more if there is a mortgage note related to financing your purchase. A purchase with financing can easily double or triple the closing costs to a buyer. A seller is not unscathed either when it comes to closing costs e.g. statutory fees, deed and seller document preparation, title search, and possibly more.
There are other amounts collected at closing which may not be a cost, per se, related to the actual closing of the transaction but these are additional costs that must be collected at closing for other purposes. Typically, these are monies that are currently being paid by the seller that now become the expense and responsibility of the new homeowner.
Good examples of this are real estate taxes. If the closing is July 1st, the seller will owe six months worth of taxes and the buyer will owe six months worth of taxes. Depending on the locale, real estate taxes may have already been paid resulting in the need for the buyer to reimburse the seller for the second six months of the year already paid. However, if the taxes are yet to be paid then the seller will pay the buyer six month’s worth of taxes as the buyer is now responsible to pay the bill when it comes due.
Another good example of this are homeowner association (HOA) dues and/or condominium association dues if the property is in a community with these requirements. Most communities require the current billing period as well as the following billing period to be paid at closing. These are not expenses related to the closing of the transaction but rather obligations of the homeowner.
There are a myriad of other costs: capital contribution fees, initiation fees, club fees, transfer fees…confused yet? Special note: fees generally are not and cannot be part of the finance equation. For example: If you are buying a $500,000 home with 20% down you will need $100,000 cash down payment plus various fees in additional cash at the closing table which could affect your purchase decision.
This blog post does not address in detail which party actually pays which fees. Want to know? Consult with a real estate professional REALTOR®