When a home is sold, there is a point in the transaction known as the closing, when the title to the property is transferred to the new owner. The buyer and/or seller commonly incur miscellaneous fees, which are collectively known as closing costs. These fees can be significant, averaging approximately 2% to 4% of the purchase price, although they may be as much as 8%.
Take a look at the following guide to get a better idea of what buyers and sellers are expected to pay upon closing:
inspection fees. Lenders may require a termite inspection or an analysis of the structural condition of the property in order to assure that a home will be reliable collateral to secure against a loan. An inspection of the septic system and water supply tests may also be required in rural areas. Always be sure to hire an InterNACHI inspector to get the most out of an inspection.
points. This one-time, prepaid interest is paid by the buyer to the lender as a way to reduce the rate of interest on the mortgage loan. One point equals 1% of the loan's principal. For example, one point on a $200,000 loan is $2,000. If the borrower plans to live in the home for a long time, it might be to his advantage to negotiate for more points. Points can be financed by adding them to the loan, or they may be paid upfront and deducted from the current year’s income taxes.
title search fees. This one-time fee is used by buyers and lenders to make sure that the seller legally owns the property, and that the property has no outstanding liens or restrictions for use of which the buyer is unaware. If divorces, contested wills or court judgments are discovered during the title search, future complications can be avoided. Anyone may perform a title search, but borrowers commonly hire an attorney or title company to perform a thorough search.
title insurance. Title insurance policies are purchased to protect the lender against an error in the results of the title search, which would otherwise endanger the lender’s investment in the borrower’s mortgage. In case the title is challenged in court, title insurance will reimburse the insured up to a predetermined dollar amount.