What are closing costs?

5 Replies

I know this may sound like a crazy question, but I would like it clarified.

  • What are closing costs?
  • What expenses are including in the closing costs?
  • Any general rule of thumb/guideline for estimating closing costs?

Thanks, Chris

That's a loaded question and depends on a lot of things, including what state you're in, whether you're the buyer or seller, and what your financing is.

Here's a rundown of Seller Closing Costs in Texas...

  • Settlement Fee - Charged by the title company to close the sale and is a % of sell price.
  • Document Prep - Yep...the title company charges for preparing the documents for closing.
  • Recording Fees - Any necessary filings to clear the title/deed.
  • Title Insurance
  • Misc Fees

Texas Buyer Closing Costs...

  • Settlement Fee - Charged by the title company to close the sale and is a % of sell price.
  • Recording Fees - Charge for recording the new deed
  • Loan Fees - Origination fee, doc fee, points, down payment, etc.

Those are the standard charges, broken down by Buyer & Seller, in Texas.  Additionally, depending on the deal and the availability of recent, existing reports, you may be looking at fees for...

  • Sales Commissions
  • Appraisals
  • Surveys
  • Inspections

Sellers are often asked to pay for specific items or contribute a fixed $ amount toward a buyer's closing costs. There are specific items required to be paid by specific parties. There are also limits, when FHA or Fannie/Freddie loans are used, as to the max that a seller can contribute to a buyer's closing costs. I believe it is currently 6% of the purchase price.

You should contact a title company or closing attorney for a breakdown and estimate of charges specific to your state.

Hope that helps!

In my state we have transfer taxes. 

If you get a loan that requires escrow of property taxes and insurance, then those will have pre-payment amounts due at purchase. 

Now, there are purchase closings and loan refinance closings, so some closing costs might not always apply. 

@Hattie Dizmond  Totally agree with everything she said when it comes to break down.

For a "quick" down and dirty estimate on how a properties "closing costs" will be I use

  • Seller- 10%
    • 6% - Real Estate Agent Fee's
    • 3.5%- Closing Cost Assistance for Seller
    • .5%- Oh Shoot, Buffer, allows for easy math
  • Buyer
    • 4.5-5% - (minus any seller assistance)

Don't forget in addition to the cost of doing a real estate deal. You will also have "escrow" fees that you have to pay to start out your account. Off the top of my head I believe it is 6 months of taxes and 3 months of insurance (it could be reversed). 

@Hattie Dizmond  @Steve Babiak  Elizabeth Colegrove 

Wow, thank you all for the detailed response. Closing costs are the less exciting, but necessary expenses that I need to learn to budget for. I had no idea they were that involved.

I will confirm how closing costs are structured based on the state I am focusing on.

I appreciate the support.

Chris

One of the largest closing costs can be adjustments for taxes. Lets say taxes are due Jan 1 and the seller pays them for the year. You settle the property Feb1. You owe the seller for 11 months worth of property taxes. 

Medium crab1 copyNed Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/

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