Some transactional costs are often Paid Outside Closing (
POC) and may not show up on the Closing Disclosure. Examples of these could be :
- Credit report
- First year's insurance
- Home inspections
(not required, though highly recommended)
Although they may not be on the CD at closing, they are still costs to the buyer that are paid
out of pocket and may or may not have been shown on the initial
Loan Estimate of costs provided to the buyer by her/his lender. More on LEs further down this page.
Closing costs cannot normally be included in the loan amount on
purchases, which is why lenders need to know that buyers have their own money available to pay these costs at the closing table. Verifying that buyers have enough in the bank to pay closing costs is an important part of a thorough
Some government-insured programs do allow a few specific (not all) costs to be included in the loan amount.
Refinancing borrowers may usually wrap these costs into the loan amount - as long as the overall Loan To Value (
LTV) stays below the maximum ratio allowed for that loan program.
seller contributions or concessions to closing costs can help a deal go through that otherwise may have stalled or failed if the buyer is a little short on available cash. This is very common ground for negotiation between buyer and seller.
Seller contributions to closing can be either a fixed
dollar amount or an agreement to pay for
individual line-item costs. Whichever way is agreed upon, it's very important for the contract to specify any seller contributions in detail.
Here in South Florida, the choice of contract (and which boxes are checked) used to document and control the transaction can indicate whether the buyer or seller agrees to pay for certain costs. Most notably these can include documentary stamps, HOA assessments, and the owner's title insurance premium.
However, just about everything in a real estate deal
is subject to negotiation between the Buyer and the Seller.
Check with your Broker and your office's legal counsel before
interpreting or changing anything on a real estate contract!
There are also mortgage programs marketed to the public as "No Closing Costs" (
NCC) loans. For these, the lender might pay for the appraisal, credit report, and settlement charges by the title company or attorney. In return, the buyer/borrower is charged a slightly higher interest rate for the life of the loan.
This is again where one's definition of closing costs comes into play. Escrows, first-year property insurance, and many other
not considered closing costs by most lenders offering a NCC program.
Even though they are home-acquisition expenses, most closing costs are
tax deductible. Instead, they add to the cost basis of the property when calculating taxable gains at the time of future sale. Click
for a link to the IRS's
which goes into detail, then consult your CPA or tax advisor.
Real Estate Settlement Procedures Act, is a Federal law administered by the CFPB that protects borrowers by requiring that they receive accurate disclosures and a
Loan Estimate of transaction and closing costs within 3 business days of loan application. Final costs (as shown on the
Closing Disclosure) cannot exceed certain allowable variances from what was on the Loan Estimate.
However, buyers should have the opportunity
to learn about closing costs without having
to make a full loan application.
That's why I suggest first giving them the
basics we're discussing in this newsletter, then have them get in touch with a local
title company or
closing attorney to get a better idea of expected costs and fees for their particular transaction.
We'll go into other aspects of RESPA in an upcoming newsletter, though it's important to mention here that one of its main provisions is consumers'
right to choose all closing-related service providers, including:
- Financing - Surveyors
- Title / closing services - Insurance companies
- Inspection firms
When your buyers have questions about transaction costs, give them a brief overview of the kind of closing costs they can expect on a property they like.
Don't try to come up with actual numbers, just prepare them to discuss and understand the costs and fees with their lender and closing title company or attorney.
Working with well-informed buyers and sellers makes things go much more smoothly for everyone.