Guide to Closing Cost
In every real estate transaction there are costs, to buyer and seller, which are referred to as “Closing Cost”. Below is a summary of the Settlement:
The Consumer Financial Protection Bureau requires that buyers receive the Closing Disclosure, outlining loan costs, among other fees, and information pertinent to the borrower, no later than 3 days before closing for review. Your TCB agent will review the disclosure with you prior to closing.
Settlement will take place at a time and place convenient to you. You should be prepared with a Cashier’s Check for amount of cash required on “closing disclosure” statement. Personal checks are not normally accepted for large sums. However, you should have your checkbook for any last-minute adjustments.
All borrowers must have two forms of government issued ID. The first must include a photo like a driver’s license or a passport. The other should have your name printed on it (like a social security card, or credit card).
Below is a brief explanation for typical fees and adjustments:
- Real Estate Commission. The seller typically pays these fees.
- Loan Originations fees. These charges are expressed as a percent of the loan. A one-point loan origination fee equals one percent of the loan amount. Loan origination fees are negotiated with the Lender and are normally paid by the buyer.
- Loan Discount Fees. Loan discount fees equal one percent of the loan amount and are negotiated with the Lender. A loan with discount points should have a lower interest rate. Loan discount fees can be paid by either the buyer or seller.
- Appraisal Fee. The cost charged by the Lender to have the property appraised. If the charge was not paid at time of mortgage application, it will be collected at closing.
- Credit Report Fee. Fee charged by Lender to acquire a Tri-Merge credit report on all borrowers. Generally, paid for at time of mortgage application. Otherwise, the fee will be collected at time of closing.
- Tax Service Fee. If your new loan payment includes payment into an escrow account for future payment of property taxes, then you may see this charge at time of closing. A tax service fee is a closing cost that is collected by a lender to ensure that property tax statements are sent to the Lender so they may pay the taxes in a timely manner.
- Flood Certification. A fee, typically less than $15, charged to obtain the government-required document used to determine whether the subject property is located in a flood plain. Federal Emergency Management Agency (FEMA) flood maps are examined using the address or geographic coordinates of the property. If the property is located in a flood plain, then the Lender will require a Flood Insurance policy which is payable annually and will be escrowed by the Lender for payment.
- Prepaid Interest. Your first mortgage payment will be schedule for the first full month after closing. If you close on January 15th, your first mortgage payment will be on March 1st. In this example, the March payment will cover interest for the month of February, which would leave interest for January unpaid (January 15 to January 31). Lenders are allowed to collect this unpaid interest in advance at time of closing.
Other items required by Lender to be paid in advance
Generally, the buyer will be required to pay the first year of Homeowners Insurance. When the policy is scheduled for renewal, the Lender will pay the renewal premium from buyers’ escrow account. If mortgage insurance is required it will be treated in the same manner as Homeowners Insurance.
- Lender Reserves. You will make the initial deposits into your escrow with the Lender. The initial deposit(s) will ensure that when items become payable there will be sufficient sums available. For example. Your homeowner’s insurance will be due after you have made 10 mortgage payments, thus you will deposit 2 months into the account at time of closing.
- Title Company Fees. The Title company will charge fees such as: (a) Settlement fee which is the company charge for obtaining and reviewing title abstract, preparing the closing statement and conducting the closing. (b) Title Insurance fees. The Lender will require a “Lenders Title Insurance policy and the buyer will have the option to purchase a Owners Title policy.
- Transfer Taxes and Recordation fees. Your contract will stipulate how these charges are to be shared between the buyer and seller. Typically, these charges will be evenly split between buyer and seller.
- Transfer Tax. Imposed on a State and local (county) basis as a fee for transferring the deed. The state of Maryland charges ½ of 1% of the purchase price. Each county has an addition transfer tax. For example, Anne Arundel County imposes a 1% tax so the tax in AA county will be 1.5% of the sales price. Depending upon the county within Maryland, the fee will be between ½ percent to 1.9%.
- Recordation Tax, also called documentary stamps, fees are an additional tax based upon the sales price. Depending upon the county, these charges will be between $5 and $10 per $1000 of consideration.
- First Time Home Buyer Exemption. First-time buyers in Maryland who have never owned property in Maryland, as a principal residence, are entitled to a one-time waiver of the state’s portion of transfer taxes at settlement. All Buyers to a transaction must meet these requirements in order to receive an exemption from payment of the State Transfer Tax.
- Additional Buyer Charges. In other unpaid charges, such as Home Inspection or Pest Inspection, will be collected.
- Junk Fees. The buyer must be aware of unwarranted fees at time of closing. Fees such as application fees, underwriting fee, mortgage rate lock fee, loan processing fee, doc prep fees, notary fees and copy fees should be examined very carefully. Your TCB agent will have a watchful eye for potential junk fees. The best way to avoid any confusion, regarding title company charges, is to select a company that has a “set” total fee for their charges.
The total of the above fees will be the buyers’ closing cost.
Adjustment for items paid/unpaid by the seller– Most contract allow for adjustments for things such as property taxes to be made as of the date of closing. Depending upon the date you close, there will either be a credit to the buyer or credit to the seller for property taxes. For example, the closing date in June 1 and the seller has paid the current year tax – which means the property taxes have been paid thru July 1st. In this case, the buyer will reimburse the seller for one-month property tax at time of closing.
Buyer Credits. Any seller or Lender credits and deposits will be shown and subtracted to arrive at cash required.
Cash Required. The required cash is calculated by [(closing cost + sales price) – deposits] =Gross Amount due. [Gross Amount due plus or minus adjustment for items paid in advance] minus any seller credits