What is included in closing costs?
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Closing costs are a fact of life when it comes to buying a home. As a real estate agent, you know that a home purchase involves additional costs beyond the sale price itself, from origination or underwriting fees to appraisal fees. Helping your clients understand these costs early on, whether you work for the buyer or seller, can mean avoiding an unpleasant surprise at a critical juncture of the process.
Keep the answers to these questions frequently asked by homeowners in mind – or simply bookmark this page and refer to it when needed – and share them with your clients when the time is right.
What is included in the closing cost for a buyer?
Zillow offered an extremely simple way to quantify closing costs for buyers: They generally pay between 2-5% of the purchase price of the home in closing fees. This figure may be more important to your clients than the specific cost associated with each of the many processes that must be paid for during closing. It will help them create an effective budget estimate that takes all of the costs beyond the big-ticket purchase price into account.
For a more detailed breakdown of individual costs, their purpose and who pays them, refer to this in-depth guide from The Motley Fool.
What percentage of closing costs does the seller pay?
In very general terms, the seller can expect to pay about twice or three times as much as the buyer when closing on a home. Realtor.com pointed out that specifics can vary significantly based on location, but budgeting for 6-10% of the sale price in closing costs is a smart move for sellers. One major factor of the increased cost for sellers is that they generally, but by no means always, pay the commission for both real estate agents involved in the sale.
Is a home inspection included in closing costs?
A home inspection, while not required in all situations, is an important step in the homebuying process. An inspection helps to reveal a variety of potential issues within a home. Because an inspection generally takes place before the buyer and seller agree to complete the transaction, it’s often paid for ahead of time as opposed to at closing.
While this is a cost buyers need to include when budgeting for a home purchase, it’s usually not included in closing costs as it has already been paid for.
Can closing costs be included in a mortgage loan?
Buyers can choose a variety of methods to pay for closing costs. That includes adding them to the overall mortgage loan balance – if their lender is willing to do so.
While it may not be possible in every case and it will slightly increase the amount of interest paid on the loan, it’s a possibility worth exploring for buyers interested in addressing these costs over time instead of directly at closing.
When do buyers pay the closing costs and the down payment?
Closing costs need to be paid when buyers sign their final loan documents, The Mortgage Reports explained. Sellers will generally pay their own closing costs around the same time.
These costs must be addressed to complete the final steps of a home sale, as the many professionals and agencies involved require payment for the services involved in closing.
In terms of down payments, the answer is similar. The buyers are expected to make the down payment on the date designated for closing, the Home Buying Institute explained. If a buyer makes an earnest money deposit – a payment that helps indicate their commitment to purchasing – beforehand, that money will sit in escrow until the closing date. At that point, it will be included with the down payment.
Can a seller refuse to pay closing costs?
A seller could potentially refuse to pay some of their closing costs. Of course, this could easily lead to the buyer deciding to not go through with the transaction. Negotiations should address any issues the seller may have in terms of paying closing costs before the day of the sale itself arrives.
Financial support for real estate agents
Issues related to closing costs can slow down a pending sale right before it’s supposed to become official. That means waiting longer for your next commission and a potential squeeze on your finances.
Just Commission Advance is here to support real estate agents just like you with cash advances on pending sales. Secure applications and distribution of funds, fast payment timelines and no advance limits are just some of the benefits you’ll enjoy when working with us. To learn more, check out our FAQ page. Once you’re ready, you can submit your application today.