Closing Costs

The various fees associated with the buying or selling of a property are called closing costs. Certain fees are automatically assigned to either the buyer or the seller; other costs are either negotiable or dictated by local custom.

Buyer closing costs
When a buyer applies for a loan, lenders are required by federal law to provide them with a good-faith estimate of their closing costs. The fees vary according to several factors, including the type of loan they applied for and the terms of the purchase agreement. Likewise, some of the closing costs, especially those associated with the loan application, are actually paid in advance. These closing costs can vary from lender to lender and a prudent buyer should shop around before selecting a mortgage lender. Some typical buyer closing costs include:

The down payment (the difference between the purchase price and mortgage amount)

Loan fees (can vary from lender to lender and can consist of points, application fee, origination fees, underwriting fees)

Credit report

Prepaid mortgage interest

Inspection fees

Appraisal

Mortgage insurance premiums

Hazard insurance (Homeowners or fire insurance premiums)

Title insurance premiums for policy purchased to protect mortgage lender.

Documentary stamps on the note (not in the State of Michigan).

Prorated property taxes

Initial deposits to an escrow account if required by lender.

Seller closing costs

Payoff of Seller’s unpaid mortgages or land contracts

Broker’s commission

Transfer taxes

Documentary Stamps on the Deed

Title insurance for policy purchased to protect buyer

Property taxes (prorated)

Negotiating Closing Costs
In addition to the sales price, buyers and sellers frequently include closing costs in their negotiations. This can be for both major and minor fees. For example, if a buyer is particularly nervous about the condition of the plumbing, the seller may agree to pay for the house inspection.

Likewise, a buyer may want to save on up-front expenditures, and so agree to pay the seller's full asking price in return for the seller paying all the allowable closing costs. There's no right or wrong way to negotiate closing costs; just be sure all the terms are written down on the purchase agreement. A seller may agree to pay all or a fixed portion of buyer’s closings costs rather then lower listing price as an incentive.

Prorations
At the closing, certain costs are often prorated (or distributed) between buyer and seller. The most common prorations are for property taxes.

If a seller pays property taxes in July or December for future periods it is expected that the purchaser reimburse the seller for such prepaid taxes

Rol/09/02