BUYERS CLOSING COST/ SELLERS CLOSING COST 

Whenever you buy or sell a home in Sacramento or other local town, there are associated costs outside of the sale price which will bring your total cost up if you are buying or bring your proceeds down from the sale when selling.

 What are these costs and why do you have to pay them?    

Whenever you buy a home, you may hear the terms “recurring and nonrecurring closing costs.  These terms are generally used during the loan process and are broken down in what is called the “buyers good faith estimate”.  The title/escrow company will itemize all of these cost based on the information that is provided to them from the lender, tax collector, insurance company and more. 

Briefly, recurring closing costs are costs that will occur again and again.  Nonrecurring closing costs will happen only once.  Both of these types of costs may vary per transaction and on how your Realtor has written your offer. 

To give you an example,  some of the recurring costs that you typically will encounter when purchasing a home and you will pay for again and again are property taxes, homeowners insurance, private mortgage insurance(PMI) if you loan is 80% or more of the value of the home, and mortgage interest.  You may be required to pay some of these at closing by “prepaying” these costs up front (recurring closing costs) and then you will pay for these recurring costs again and again.  Depending on how your loan is structured, these cost usually will be paid for monthly through what is called an “impound account” (this is when a portion of your payment outside of your principal and interest will include a collection for your taxes, home owners insurance and private mortgage insurance) that is maintained by your lender who will pay the cost for your taxes and insurance from the account.  Many lenders will collect anywhere from 3 or more months of these impounds up front for a reserve.  Generally, if your loan is less than 80% of the value of your home or it is an all cash transaction, you will have to pay for your insurance and taxes on a single and double bill respectively without an impound account unless you prefer to have one.   Most insurance companies will not bill you monthly (some do).  And taxes come in a single bill that you can pay all at once or on 2 separate payments. 

The list for nonrecurring closing costs is a lot longer.  Remember that these will generally occur only during the closing of escrow on your purchase.  An example of some of the nonrecurring costs you may encounter include, but are not limited to or may be less than, lender points (this is a percentage charge of the total cost of your loan), appraisal fees, home inspections, pest inspections, credit report, transfer taxes, title insurance, escrow fees, notary and recording fees, deed preparation fees, courier fees, and other cost as appropriate.   

Now remember, your Realtor will help to minimize your nonrecurring costs by structuring an offer on your purchase that benefits you as a buyer.  Nonrecurring costs will occur but does not necessarily have to be paid by the buyer.  The seller can agree to pay many of these costs.  And, many times it benefits the seller to pay these costs to ensure the sale goes through without any glitches.  More importantly, many buyers do not have as much funds as they would like when purchasing a home.  So when the seller agrees to pay for some or most of these nonrecurring closing costs, it creates a win-win situation.  

I personally have been involved with transactions where the seller has agreed to pay everything, split the cost, or pay nothing towards the buyers' nonrecurring costs.  This will vary with every transaction as will the amount of your costs. The majority of the times sellers are very cooperative and do everything possible to facilitate the sale.

So how much can a buyer expect to pay?  This will depend on many factors including the amount of the loan, lender fees and points, interest rate, how much time has passed since the home was last in escrow, title and escrow charges, among other items.  Many title companies will give you a good idea on what the title escrow charges will be if you know the purchase amount.  But don’t forget, we may be able to get the seller to pay for these.  Depending on the lender, fees can vary significantly.  So always shop around for not only the best interest rate, but also for the least amount of fees.  Also, insurance carriers can vary their insurance premiums by a couple of hundred dollars or more per year.  This can reduce your payment by $16 or more per month (every little bit helps) and reduce your closing cost by the same $200 or more.   

Many Realtors can assist you in clarifying many of the terms used above and can guide you and help you minimize your costs without increasing any costs to the seller.   

So what about sellers costs?  These costs are generally referred to as fees or just closing costs.  Many of the same buyers’ costs may be incurred by the seller.  This is dependent on what items you as the seller agree to pay.  Some of the costs you may incur may include title fees, escrow fees, city and county transfer tax, deed draw fee, buyers home warranty, natural hazard disclosure fee, listing brokers fee, a proration of taxes, and any other cost(such as IRS and Mechanic liens or others) directly associated with transferring a clear title to the property.   

I always tell my buyers to expect around an additional 2% to 5% of costs over the sale price (depending on your lender costs and other items I mentioned to you to shop around for).  For a $200,000 purchase, the additional buyer’s cost may be roughly $4,000 to $10,000.  I always tell my buyers of the anticipated cost associated with buying any property from the start.  This will help them better prepare financially and help avoid what I call “financial buying shock”.  I help my buyers prepare and plan their home purchase to make it more pleasurable and less stressful.  Keeping my buyers informed makes them better prepared for what costs are forthcoming.   

For my sellers, I always tell them, upfront, to expect their cost to be around 8% to 10% of the sale price.  For a $200,000 home, they may generally see a reduction of $16,000 to $20,000.  This is just the cost of doing business.   By telling my sellers their anticipated costs from the beginning, they will not be surprised or shocked by the cost associated with the sale.  Sellers will be ready and prepared for this cost and can budget this amount out of the proceeds of the sale.  Better planning leads to fewer disappointments when their check arrives because they will know what to expect. 

 In the end, whether you are a buyer or seller, be prepared to pay closing costs.  They are going to happen whether we like it or not.  But being informed and prepared may alleviate some of the stress and possible disappointment associated with paying closing costs.  And never forget to ask your Realtor, escrow officer, or loan officer questions regarding any cost, terminology, or any other thing you are not comfortable with or do not understand.  We are here to inform and help.  Remember that the only stupid question is the one that is not asked.

 Happy house selling/buying!