Home Buying in Dallas>Question Details

Nfuentes, Home Buyer in Dallas, TX

Closing Costs 101? What are they? Who pays for them (buyer or seller)? And are they included in the mortgage, or do they have to be paid up front?

Asked by Nfuentes, Dallas, TX Thu Nov 8, 2012

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Both the buyer and seller will incur closing cost however as a buyer you (your Realtor) can negotiate with the seller to pay for some of all of your closing cost and pre-paid items (setting up escrow accounts, first year of home owners insurance and property taxes). It is important that you let your realtor know up front if you will need help with the closing cost so they can negotiate the offer on the home based on the amount you need. It is important to get your pre-approval from a lender so they can also give you an estimate on just how much money the closing cost and pre-paids will be.
As a lender I like to work with the Realtor during the negotiation process so we can make sure the buyer is covered as much as possible on the closing cost. There are many cases also where we can roll the closing cost into the loan (if the appraised value is there) so it will help lower your money to close if the seller is not willing to help pay any of the cost for you.
As far as upfront, you can expect to pay for Earnest Deposit (when you make the offer), a home inspecition if you want one (usually not required but highly reccommended), and depending on the type of loan, a pest inspection, and of course the appraisal although some lenders allow this to be paid at closing as a part of the closing cost.
I hope this helps and if you have any more questions or would like to discuss further I would be happy to help.
Good Luck!
2 votes Thank Flag Link Thu Nov 8, 2012
I like Kenny's simple answer.
I normally say 8-9% for a seller depending on the price of the house.
About 2-3% for the buyer depending on the price of the house.
However most are negotiable.....
I've seen sellers pay all closing costs and I've seen buyers pay them all.
It really depends on the deal.

If you are a buyer the best resource will be your mortgage lender, but your realtor can also help give you an estimate. Normally they will need to be paid up front. You might be able to use a combination of lender assistance, seller assistance and some of your own money. Sometimes lenders can raise your interest rate to help you pay some of the costs normally attributed to a buyer.

Hope this helps. Let me know if you would like to sit down and go over all the costs step by step.
0 votes Thank Flag Link Thu Nov 8, 2012
Bruce Lynn, Real Estate Pro in Coppell, TX
Lots of great answers....

It is normal and customary for sellers to pay some of your fees. How much they pay is part of the negotiations.
For example: You find a home for $150,000 and negotiate down to $145,000 or not negotiate down and pay full price with them paying $5000 of your fees. The seller still gets $145,000
This is done all of the time.

Tom Burris
Mortgage Banker
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Lending all across the entire Great State of Texas!!
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0 votes Thank Flag Link Thu Nov 8, 2012
Please note: the inspection fees mentioned and the appraisal are normally paid up front by the buyer prior to closing.
Including the cost in the mortgage would be done, as I mentioned, by raising the interest rate slightly to generate cash from the lender.
Web Reference: http://www.SumnerRealty.com
0 votes Thank Flag Link Thu Nov 8, 2012
Closing costs and prepaid costs are two items that can add to the buyer's side and to the seller's side.

When you buy a car, there's the price plus tax, title and license. We all understand that and can negotiate with the car dealer to pay some or all of those additional costs. When you buy a house, there's the price plus closing costs and prepaids.

Prepaids are normally buyer expenses for taxes and homeowner's insurance, but can include other items like HOA or condo fees. Here in Texas we often estimate taxes at the "unexempt" rate (without any exemptions, such as homestead exemption) and ranges from 1.8% to 3.2%, typically 2.5% on an annual basis. When you close in August 2/3 of the taxes that will be due on the house in January are owed by the old owner and 1/3 will be owed by the new owner. The tax bill doesn't come out until October, so only an estimate is available.
The old owner gives a credit for his 2/3 to the new owner and the mortgage company requires the buyer to pay in advance (prepay) a portion of the 1/3 more that will be due. Typically, it's 3 months' worth of taxes. Each month after closing the mortgage company will collect a month's worth of taxes (1/12) and put it into an escrow account, and when the bill arrives in October, the mortgage company will pay the actual amount due from that escrow account.
Insurance is usually paid on the anniversary date of the closing. The escrow account that holds taxes also holds insurance premium for payment a year after closing on the renewal. Insurance ranges from 1/2% to 1%, typically 2/3% of the house value per year. Prepaid expense for insurance would be the entire year's coverage plus 2-3 months worth of premiums.

Closing costs --
These come in two flavors: buyer's costs, seller's costs. But, they can be negotiated to either side of the transaction. Some items are by default shared, such as the fee for the title company's closing itself.
Buyers normally pay their own loan origination, mortgage title policy, credit report, appraisal fee, inspection fee, other reports on the property if any, and share the closing (escrow) fee.

Sellers normally pay for title insurance for the new owner, (their own loan payoff), courier or other delivery fee for the payoff, transfer fees for condos and HOAs, the shared expenses, and commissions for brokerage.

Nothing is set in stone, but usually these "closing costs" amount to 8% for seller and 5% for buyer.

The lender can generate cash back to pay for some of buyer's costs using a slightly higher interest rate. Both buyer and seller can negotiate these costs back and forth, although what is show above is customary. If the price is low enough compared to the appraised value, the seller can generate cash by raising the price.
Web Reference: http://www.SumnerRealty.com
0 votes Thank Flag Link Thu Nov 8, 2012
Big question here. There are many moving parts to a mortgage application and closing. Listing and Selling agent, Inspector, Lender, appraiser, processor, underwriter, attorney, title company, surveyor, insurance company, property tax entity, just to name a few. See what I mean? And none of them works for free, and I doubt that you do either. So their costs are mostly negotiable between buyer and seller.

Typically, the seller pays for the Realtors and the owner's title policy. The remainder are buyer's costs. The VA prohibits the buyer from paying some of these fees, so the seller picks them up.

Each loan type puts limits on the seller's contributions to buyer's costs. FHA limits to 6%, Fannie/Freddie is ranges from 3% (95% LTV) to 6% (90% LTV), to 9% for 80% LTV or lower. One rarely sees a seller paying 9% though. USDA does not put any limit on seller contributions, and VA allows for all closing costs + 4% more for prepaids and discount points or funding fee.

If you raise the sales price high enough for the seller to pay their allowed amounts, you might exceed the appraised value of a property. What it all boils down to is negotiations between all parties.

Hope this helps.

Barbara Coker
100% Home Loans All Over Texas!
Licensed Mortgage Loan Officer
Web Reference: http://www.thecokerteam.com
0 votes Thank Flag Link Thu Nov 8, 2012
Closing cost are fees with buying or selling a home. They Buyer and Seller both have there own fees and they vary depending on your mortgage terms and what you have negotiated with the Seller/Buyer.

They usually are 9% of purchase price for the Seller and 3% for the Buyer. Again, this is an estimate, yours many be higher or lower. This is only as a tool.

Good luck.

0 votes Thank Flag Link Thu Nov 8, 2012
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