What Are Closing Costs?

Buying a home is probably the largest and most significant purchase you will ever make. Thankfully, with the high price tag comes the likelihood of a good return on investment: You buy your home at one price and watch that value increase over time and with improvements you make on it… eventually selling it at a higher price.

However, the cost of buying a home is more than just the cost of the house. First-time buyers are often taken aback by the number of extra fees that accumulate in the process of making the purchase. These are commonly referred to as “closing costs”, and it is good to be ready for them. This article will outline most of those closing costs and then tell you at the end what you can do about them.

Also known as settlement costs, the closing costs are basically those fees and charges which apply to the various services that are acquired during the course of a real estate transaction. These can include home appraisal fees, insurance costs, initial property tax payments, home inspections, loan processing charges, legal fees, and real estate commissions. In California, as in many places, it is quite common that lenders will ask for title insurance as well, which offers lasting protection on the deed of trust. Other closing costs may include condominium or association dues, mortgage application fees, home warranty fees, or transaction stamp taxes.

Add all of this up and things can seem very confusing and expensive. In some cases that is the whole idea! After all, if lenders or lawyers can cover their costs without appearing to charge as much for their primary services, they can get in on the real estate profits without actually having to make any investments. Home buyers and sellers need their services, and so they benefit as a result. But it does not have to be confusing or surprising. One should persistently and consistently inquire that all costs be disclosed up front every step of the way by everyone involved. Fortunately, consumer advocacy laws are moving in this direction for many of the parties that add fees to the closing costs.

This means that if lawyers plan to charge photocopying fees they should say so from the beginning. Be sure to ask if lenders are going to charge a nominal mortgage processing fee or anything of the sort. If they are attracting you away from your usual bank or lender with a half percent lower interest they may be planning to make it up in extra charges.

You should not be afraid to ask for details to be explained to you at every level. Just because they do this all the time does not mean you should feel dumb for asking. Nor does the fact that you need them nullify the fact that they want your business. If there seems to be any room for negotiation, ask for fees to be dropped. And, if you can’t afford to pay the additional fees up front (along with a down payment) consider having some of the closing fees spread out through your mortgage payment. Admittedly, when it comes to things like taxes, you will not have much choice… but you should still know all your closing costs before you make the transaction.

In the course of a real estate transaction, some bargaining can be done regarding who pays what: The buyer or the seller. In California the common practice may vary by county, so it would be good to consult an expert at Realty Counselors Inc. They will be able to help you understand all closing costs and determine which must be paid by you, which can be shared between buyer and seller, which can be negotiated, and which can be eliminated altogether.

Los Angeles Real estate & City Information