Thursday, February 9, 2017

Buyer's Closing Cost 101

In the sale of a home, there are three types of cost categories associated with closing escrow. 

1. Transactional Costs – Those costs to the seller and buyer typically pays that is associated with transferring title from one party to another. 

2. Variable Re-Occurring Costs – These are cost that the home owner pays; mortgage, Interest, HOA dues, insurance, taxes, etc. These costs may fluctuate depending on what day of the month escrow closes. 

3. Non-Refundable Cost – Costs associated with obtaining various inspections and reports; termite/pest, home inspection, etc. 

Typical Buyer Transactional Costs

1. Lenders Title Insurance – Title insurance protects the lender from any legal challenges that could arise from a third party challenging the ownership status or title of home if something didn’t show up during the title search. Prior to closing escrow, if there is anything wrong with the title (known as a cloud or defect), the seller will need to fix it so the sale can proceed. 

Cost Estimate – Static cost in CA. Depending on home selling price owner premium range from $0.95 – $1.40 per $1000 for a home between $500k - $1.5M. Example $750,000 home = $963 or $1.28 per $1000. 

2. Escrow Charges - Fees associated by a neutral third party hired to manage the funds and carry out the provisions per the instructions or contract. In Orange County fees are split 50/50 with buyer. Below are the estimated sellers portion. 

Cost Estimate – Estimate $2.00 per $1000 Plus $250 to seller. Example $750,000 home = $1,750. 

3. Lender Charges – These are loan processing and underwriting fees. This excludes discount points and pre-paid interest 

Cost Estimate – $1000 - $2000 estimate 

4. Miscellaneous Fees – Typically associated with the administrative aspect of the transaction; Courier, notary, wire and recording fees. 

Cost Estimate – $250, but can fluctuate depending on complexity of the transaction. 

Typical Seller Prorated Re-Occurring Seller Costs

1. Monthly loan/mortgage payment, paid interest, home owner insurance, property tax, special assessments/Mello Roos (if applicable), HOA – home owner association fees & special assessment (if applicable) and property mortgage insurance (if applicable). 

Cost Estimate - Varies depending costs of services provided and date of closing based on a 30-day month. 

Typical Non-Refundable Seller Costs 

1. Appraisal - When a loan is involved with the sale of a home the lender will require an appraisal to make sure the appraisal is equal to or higher than the agreed upon selling price. Appraisals are not required for cash buyers. 

Cost Estimate – $500 Estimate. Typically paid for by the buyer and paid directly to the vendor of choice. 

2. Home Inspection – Typically paid by the buyer either directly or via escrow. The home inspection protects both parties against issues. Inspection company chosen by buyer 

Cost Estimate – $500 Estimate for inspection and report. Issues uncovered through the inspection process are negotiable with seller to correct. Typically paid for by the buyer and paid directly to vendor or choice 

3. Survey Fees – Only completed if buyer or lender require it and typically not requested. Survey of plot to locate boundaries. Fee typically goes to the survey company directly 

Cost Estimate – $500 Estimate. Typically paid for by the buyer and paid directly to the vendor of choice. 

4. Home Warranty Insurance – Home warranty coverage is typically paid for by the seller for 1 year after close of escrow. Service calls are paid by the buyer or new home owner. Warranty coverage and service calls after the 1st yr. of ownership and beyond is at the new owners expense. 

Cost Estimate – $55-$85 per service call per call after home is purchased and provided that the seller bought home warranty coverage at time of closing escrow 

* All information presented in this document are guidelines and should not be relied upon in anyway as every situation is unique. Please consult with your providers to get accurate costs relating to your specific situation. 

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