There are different costs associated with the purchase or sale of a property. Here is a snapshot of just some of what homebuyers and sellers can expect, so they are not caught off guard.
Loan Application, Credit Check Fee, Appraisal
Depending on the lender and loan program, buyers may encounter fees for a credit report, appraisal, loan origination, processing and other services. Ask the lender which fees are due upfront, which may be paid later, and which options are available for covering closing costs.
Do not assume every fee can be added to the mortgage. Whether costs can be financed depends on the loan program, lender requirements, property value, loan limits and other applicable restrictions. Request a Loan Estimate and discuss the numbers with your lender before committing to a loan.
Earnest Money & Option Fee
Buyers, this is going to be some of the first costs needed after you have a contract on a property. The earnest money amount is a negotiable amount between you and the seller, and it is what they are requiring any potential buyer to pay down as a "good-faith deposit". It gets signed for by title company along with the contract, or within the number of days required by the contract. This helps the seller to know that a buyer is serious about the purchase, and it also gives them assurance to take the property off the market long enough to give that buyer the chance to get the deal done. It will be payable directly to the title company/attorney, and it will be deposited and kept in an escrow account until either the contract terminates, or it gets credited back at closing.
The option fee is basically an amount also payable and given to the title company but can be later released to the seller that "buys" the specified number of days for the buyers to have the unrestricted right to terminate the contract if needed. This number of days is usually used by the buyer to do any inspections, get the reports back, and make a decision whether to move forward or terminate, pending those results. The option fee is separate from earnest money. Under the applicable contract, it is generally not refundable if the buyer terminates using the option, but it is generally credited toward the sales price at closing if the purchase is completed. Buyers should review the contract carefully because the amount, deadlines and termination rights depend on the agreed terms.
Inspections, Surveys, Etc.
These costs are not mandatory on every transaction, but for the most protection possible, every buyer should consider doing an inspection and a new survey with the added boundary coverage.
Usually, inspections are done as soon as possible after signing, when the inspection company and the seller can agree to a day and time, so the report can be completed and returned to buyer to look over and make a decision pending those results, before option period runs out. Inspection costs can usually be quoted by that particular company the buyer chooses to use, and most of time that is done by square footage. If buyer wants to pay additional for any addons like septic, water well, wood destroying insects, out buildings, pool, etc., they should let their agent, or the inspection company know when it is scheduled.
Surveys are usually done after option period is over, and buyer has decided to move forward. This cost can also be quoted by whatever surveyor the client chooses to use.
Cash To Close
If you're the buyer in a transaction, this is going to be where having those numbers figured by the lender you choose is so very important. They should give you a loan estimate at time of application, and even though those numbers are going to be fluctuating depending on the actual closing date and sales price, it should have given you an idea of what to expect to have to bring to the closing table.
There is going to be a list of loan costs and lender fees. This will include everything from the down payment, appraisal, discount points, loan processing fees, escrow account startup, prepaid house insurance, mortgage insurance, etc.
There is going to be a list of title company fees. This could include things like document prep, endorsements, prorated taxes, escrow fee, etc.
If you agreed to and rolled any service providers fees to closing (survey or inspection), those will have to be paid.
Any agreement to pay agent commission.
If you are the seller in a transaction, hopefully you will be getting money at closing, and won't need to bring any cash to close, but your agent can help you get a net proceeds sheet together so you can be ready for your closing costs. It will be an estimate because the numbers do fluctuate depending on the actual sales price and closing date.
There will be a list of title company fees. This could include items like owner's title policy, prorated taxes (and any outstanding taxes), recording fees, tax certificates, etc.
Any existing mortgage payoff.
Any agreement to pay agent commission.
Here are some other amounts that could be taken out of seller proceeds if any pertain to that specific transaction. If the contract had any seller concessions to aid the buyer or if there was agreement to provide a home warranty. If you agreed to make any repairs and you rolled any of those costs to closing, those service providers will be paid. If there are any other liens tied to the property such as remodels, leased fixtures, service provider work, etc., all will have to be taken care of.
This is not an exhaustive list of every possible amount, and each transaction has its own details and considerations. Some of these are absolutely negotiable too. Buyers and sellers should definitely discuss every aspect with their agents, lenders, title companies, and anyone providing services along the way, so they can be as prepared as possible, which always helps a purchase to go smoother.
Melissa Summers
Hi there! I am the Broker & Owner of Country Roots Realty, and I love helping sellers and buyers with all of their real estate needs here in the heart of the East Texas Pineywoods.
