Buyers are often concerned and confused about closing costs -

Different parties to a sale identify closing costs in different ways, so it's important for buyers to get an accurate idea of what's involved in closing a real estate transaction.
Let them know about the categories, fees, and charges we're discussing today, then refer them to some local title companies or closing attorneys for a more detailed look.

  ...because it's generally considered a vague, catch-all term used in real estate deals.

Closing or settlement is the final step in a real estate transaction. At closing, ownership is transferred from seller to buyer, funds are paid from buyer and lender to seller, and documents related to the sale and mortgage are recorded in the local city or county.
The phrase "closing costs" refers to what buyers pay
out-of-pocket at the closing table and is NOT included in the
purchase price, down payment, or mortgage loan amount.
There are closing costs on all-cash deals too, though obviously not the ones related to financing.
Depending on who you're asking, some items are included in closing costs and some are not. This is a source of much of the buyer confusion because many of the charges are third party pass-throughs and can be categorized differently by various parties to the transaction.
Let's look at some closing expenses and see who receives them :


Lender Charges


   - Origination, processing, and underwriting charges

   - Points - prepaid charge used to "buy down" an interest rate

   - Per diem interest (charged for the days after closing, yet before

      the first scheduled mortgage payment)



Third-Party Service Provider Charges


   - Property appraisal

   - Survey and Elevation Certificate

   - Credit report

   - Insurance - property hazard, flood, windstorm`

       (first full year's hazard insurance must be paid before or at closing)

   - Title company or attorney fees for conducting settlement

   - Title search, title insurance (owner's and lender's)

   - Inspections - (home, well, septic, pest, flood cert, wind mit, etc)

   - Real estate commissions (usually paid from seller's proceeds)

   - HOA or Condo Association application and transfer fees



 Government / Municipal Charges

  (representative for Collier County, FL)


   - Property taxes (pro-rated between buyer and seller by closing date)

   - Documentary stamps on deed and mortgage

   - Intangible tax on mortgage face value

   - Public records recording charges

   - Other transfer taxes depending on incorporated town or city

   - CDD or MSTU pro-rations / payoffs (FL independent taxing areas)



Escrow Funding


   - Monthly insurance and property tax payments are collected

      and held in an escrow account by the mortgage servicer so

      enough of the buyer/borrower's own money is available to

      pay the next insurance and tax bills when they are due.

      Failure to pay either one can place the loan in default, and

      escrowing reduces the chance of non-payment.


      Depending on the closing date, up to 4 months of tax

      payments may need to be paid into escrow at closing.

      Initial escrow funding for insurance is usually 2 months

      of premium payments.


Important note: Insurance is paid in advance (for the coming year), while taxes are paid in arrears (for the past year). Due to this, lenders require proof of a full year's insurance payment before or at closing. This is in addition to initial escrow funding.


(You don't have to be a theoretical physicist to understand closing costs)

Th e Closing Disclosure document prepared by the closing agent (with input from the lender) reconciles the payment of funds that results in closing the transaction and transferring ownership. The closing title company or attorney then disburses funds to the parties as shown on the CD. 
Some transactional costs are often Paid Outside Closing ( POC) and may not show up on the Closing Disclosure. Examples of these could be :

- Appraisal
- 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 PreApproval.

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. 

Remember that 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
expenses are  not considered closing costs by most lenders offering a NCC program.

Even though they are home-acquisition expenses, most closing costs are NOT tax deductible. Instead, they add to the cost basis of the property when calculating taxable gains at the time of future sale. Click   here  for a link to the IRS's Publication 530 which goes into detail, then consult your CPA or tax advisor.

RESPA, the 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  lender and 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
 -  Attorneys                                   -  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.



Chris Carter                  NMLS-Licensed Mortgage Advisor 861361
239 898-5455 cell                            FL Real Estate Sales Associate
                                 © 2017 Chris Carter


June 20, 2017


Chris Carter
Mortgage Advisor




   FL Real Estate
Sales Associate
239 898-5455 cell
Naples, FL  



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