Closing Cost and Transaction Fees
One of the many challenges faced by both Buyers and Sellers in today market place is the increasing cost associated with purchasing a home. With increased demands on virtually all players in the real estate transaction, cost continues to rise. Appraisals have gone up, the cost of title insurance has increased, the effects of (TILA RESPA Integrated Disclosure (TRID) are putting increasing demands on lenders and law firms resulting in increased labor and expenses, all of which are affecting the closing cost associated with purchasing a home.
Closing costs or Transaction cost generally fall into several categories: Loan Origination Cost, Attorney Fees & Government Recording Fees, Inspection Fees and Escrow Funding.
Loan Origination Cost & Lender Fees – These are the costs associates with securing a loan. They generally include and Origination Fee, which is a percentage of the loan amount charged by the lender. This can range from 0% to 1.5% depending on the interest rate that is being provided. Additionally the lender imposed Administrative Fees, Processing Fees, Credit Reporting Fees, Document Prep Fees, Underwriting Fees and Lenders Title Insurance.
Attorney Fees – These fees are charged by the Closing Attorney. They include a fee for conducting the closing. They may also include any additional services they provide such as preparing POA’s and issuing Owners Title Insurance or securing surveys if called for in the contract.
Government Charges & Fees - These fees although collected by the Closing Attorney are fees levied by the State and County which are charged on the transfer of the property, and on the recording of the legal documents associated with the purchase and sale of the property.
Prepaid & Escrow Items – This includes the first year homeowners insurance premium, prorated interest on the loan being secured, and funding for the escrow account, which is an account that houses a portion of your payment each month in order for the lender/servicer to build up enough money to pay the taxes and insurance on your behalf the following year.
Miscellaneous Expenses – These include HOA Initiation Fees, HOA Statement Fees and prorations for the current year HOA Dues. Additionally, there will be cost associated with various inspections on the home and bonds or warranties if any required.
What are the options? - There are only four options for addressing these costs.
- Buyer May Pay Them All – This is how closing costs and transaction costs are presented since all of the cost associated with the transaction are associated with the buyer securing a loan in order to gain title to the property. This increases the amount of cash need by the buyer.
- The Seller Can Pay Them All – This approach provides for the Buyer to only need the downpayment in order to secure the loan to acquire the property.
- The Buyer & The Seller Can Share In The Cost – This approach shares the cost associated with the Transaction Cost. Pease keep in mind that each of the options listed above are negotiated between the Buyer and the Seller and are always reflected in the sales price.
- The Lender Can Assist – In this case the lender can provide a credit in exchange for an adjusted interest rate. This can in many cases reduce the cost of securing the loan by $1,000’s of dollars.