When it comes to conducting a real estate transaction one of the essential things to take into account are the closing costs. In general terms, closing costs are complementary costs as a result of the purchase or sale of the real estate. These are part of the negotiation and includes to the price of the property if you are buying a property or part of the expenses of the seller in the case of the sale of a house. A lot of factors will determine the closing costs. However, two significant factors will impact and define the amount of the same. These two factors are: if you will be buying or selling, and the second important factor is: if it is a purchase operation, if it is to be cash or if it is through a mortgage.
Closing costs when buying a property: Our example will assume that you will purchase a property at $ 300,000 with a loan (if any) of $ 200,000.
Loan Origination Fee
The fee that the bank charges to cover the costs of processing the loan. This cost varies depending on the institution. Their range of variation can be commonly between 1% and 3% of the loan amount. If we choose a 2% Origination Fee, in our example it would give us $ 4000. This cost is not applicable for the cash transaction.
The assessment of the value of the property you will purchase. The bank or the banking institution that is going to grant the loan will request this. The company authorized and licensed for this purpose will conduct the appraisal. The typical value of this item is between $ 400 and $ 500. If the transaction is cash, you don"t have to worry about this cost.
The bank that will provide the loan will request this report so that it can assess the history of the buyer"s credit behavior. Cost is typically not more than $30. Not applicable if the purchase is in CASH.
Charge for examining public records to research the title and determine if there errors in the title. This will also confirm the owner"s rights to the property. It is crucial that the real estate attorney who will conduct the analysis is expert with the law to avoid future issues. This cost typically ranges from $ 100 to $ 250.
Search encumbrances (Lien Search)
The search will determine if the property has any liens, lawsuits, or open permits that could affect the future owner of the property. Look for attorneys title services who are meticulous in searching for the title"s history. This cost typically ranges from $ 250 to $ 300.
Ground Survey (Survey Fee)
This item does not apply to the purchase of a condominium. The survey serves to test the limits and dimensions of the property. This survey cost around $400, and you can skip the survey in Florida.
Correspondence (Courier Fee)
These are the costs for expediting the sending of documents quickly. Typically it"s about $30.
Title insurance for the buyer
This policy protects the buyer from problems or errors arising in the title before buying it. There is a chance that some issues were overlooked during the Title Search and the insurance will cover for such lapses. Unlike most insurance, this policy is paid only once. The cost is generally around 1% of the transaction price. In our example, the cost would be to $3000.
Title Insurance for the Lender
This policy is similar to the one above but protects the lender. Their cost is usually typically the same percentage as owner"s policy. However, instead of paying for the whole transaction amount, the fee will be based on the loan amount.
Title company fee (Closing Fees)
Title companies are independent private businesses that are in charge of the whole process of closing the deal. The tasks of the company are multiple, and the main ones include:
- Requesting and analyzing the Title Search and the Lien Search. Ensure that all debts that may affect the real estate, such as mortgages, taxes, payments to associations or pending condominiums are paid.
- Have the necessary documents registered such as securities and mortgages.
- It will handle the purchase of insurance for the title and the lender.
- It will take care of receiving the money collected in the transaction and make the necessary disbursements to the parties involved, payments to the private or public entities, etc.
The closing costs vary widely from company to company, but in general terms, they can be between $ 600 and $ 1200.
f you want to know how much would be an estimate of the total closing costs based on the price, it will vary if you will pay using cash or mortgage. If the purchase is through cash, the closing costs will be between 1.5% and 3.5% of the price of the transaction. However, if the purchase is financed, we can say that the closing costs will be between 5% and 6% of the total price.