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
Buyer, depending on the lender you go with, they may charge up front for processing your loan application, running your credit report, and scheduling appraisal. Not all banks and mortgage companies do, but this is definitely a question to ask so you can be ready with those funds. Some lending programs will allow a buyer to roll certain costs into their loan, but something to be aware of if you plan to do this, is the property will have to appraise for a higher amount if rolling any costs in on top of the agreed sales price. This is a conversation to have with your loan processor so they can run the numbers and make sure it will make sense.
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 decided by 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. This amount remains the sellers to keep should the buyer decide to terminate, but if no termination, it gets credited back at closing.
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.
