In every real estate transaction there are some typical expenses and fees that involved parties are paying for. Even if you never bought or sold a home before, you probably heard about Real Estate commission, Appraisal, Excise tax etc. If you’re thinking about buying a home, you’re probably wondering what additional expenses you’re going to be responsible for aside from mortgage.
In this post I’ll break down the distribution of expenses in a purchase/sale of a real estate, and explain some of the terms.
Buyer typically pays for:
- Escrow fees (buyer’s portion)
- Document preparation if applicable
- New loan charges (except those required by lender for seller to pay):
- Credit report
- Tax service fee
- loan origination fee
- Reserves for taxes and insurance
- Flood certification
- Mortgage insurance premium
- Tax pro-ration (from the date of acquisition)
- Title insurance premium (Lender’s policy)
- Interest on a new loan from date of funding to 30 days prior to first payment date
- Home inspection fees
- Homeowner’s transfer fee (if applicable)
- Fire insurance premium for first year
Seller typically pays for:
- Real Estate commission
- Escrow fees (seller’s portion)
- Excise Tax
- Any loan fees required by buyer’s lender
- Payoff of all loans in seller’s name (or existing loan balance if being assumed by buyer)
- Interest accrued to lender being paid off
- Statement fees, reconveyance fees, and any prepayment penalties
- Home warranty (according to contract)
- Any judgements, tax liens, etc. against the seller
- Any unpaid Homeowners dues
- Tax proration for unpaid taxes at the time of transfer of title
- Recording charges to clear all documents of record against the seller
- Any assessments outstanding
- Any and all delinquent taxes
- Title insurance premium (Owner’s policy)
- Seller credit for closing costs (according to contract)
- Unpaid utilities (according to contract)
Escrow company is a third party in real estate transaction, and duty of escrow agent is to ensure that all paperwork is in order, all funds are distributed to the parties involved, and title is recorded.
Home Appraisal is required by lender before loan approval. It is also advisable for buyers to do independent appraisal. Buyer’s broker may give Broker’s Price Opinion, but only licensed Appraisers can do home appraisal.
Title Insurance Policy protects lender and owner against financial loss due to title defect (for example lean against the title). It’s a one time premium paid at closing. A new policy is purchased each time the property is sold. The owner’s policy insures for the purchase price, and lender’s policy for the loan amount.
Excise tax is a tax on a sale of the real estate. The rate in King County, WA is 1.78% of the sales price. Rate vary depending on the area.
Flood Certification fee is charged by the lender to determine if property is in the flood zone.
I hope I could help clarify a little all the costs entailed in real estate transactions. If you have questions about any part of this post, please post a comment or contact me directly.