What Costs Can a Buyer Expect at a Real Estate Closing?

052There are several costs that a buyer can expect at a real estate closing.  On the closing date, the ownership of the property is transferred to the buyer. In most jurisdictions, ownership is officially transferred when a deed from the seller is delivered to the buyer. Lenders providing a mortgage loan will often require title service, including title search to deliver clear title and title insurance, appraisal, land survey, and attorneys to be involved.  If a lender is not involved (i.e. the buyer is paying cash), the costs are much lower.  Typically, the most expensive costs for the buyer involve lender related costs (i.e. lender’s title insurance, appraisal, site survey, buyer paying points to reduce the overall APR, etc.).  Whereas, the seller typically can expect the real estate commission to be the most expensive cost.  However, the market exposure and expertise can typically bring a higher price than a FSBO (for Sale By Owner) and offset the commission cost.

Clear title is the phrase used to state that the owner of real property owns it free and clear of encumbrances or liens. In other words, these terms are used to state that, although the owner does not own clear title (free of liens), it is nevertheless within the power of the owner to convey clear title.  An example of a lien is a property encumbered by a mortgage.  Thus, this encumbrance means that no one has clear title to the property. However, standard terms in a mortgage require the mortgage holder to release the mortgage if a certain amount of money is paid. Therefore, a buyer with enough money to satisfy both the mortgage and the current owner can get clear title (free of this encumbrance or lien).  So if, for example, you are selling a house for $100,000 and you owe $80,000 on an existing mortgage, then at closing, the existing mortgage would be paid out of the $100,000 sales price. That would leave $20,000 as your net.  Hopefully, you will be able to sell your home for more than enough to pay off the liens (including a mortgage) as well as closing costs. Should your home not sell for enough to cover any mortgages, liens and closing costs, unless you are able to make up the difference, you could be in a short sale situation.  There are other liens or encumbrances that should also be addressed (i.e. IRS and utility liens).  This is part of the title search prepared by the closing agent.

Title insurance is a form of indemnity insurance predominantly found in the United States which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. Title insurance is principally a product developed and sold in the United States as a result of an alleged comparative deficiency of land records in that country. It is meant to protect an owner’s or a lender’s financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy. The first title insurance company, the Law Property Assurance and Trust Society, was formed in Pennsylvania in 1853.[1] The vast majority of title insurance policies are written on land within the United States.  Typically, the real property interests insured are fee simple ownership or a mortgage. However, title insurance can be purchased to insure any interest in real property, including an easement, lease, or life estate.

There are two types of policies (owner and lender). Just as lenders require building and other types of insurance coverage to protect their investment, nearly all institutional lenders also require title insurance (a lender’s policy on the loan amount) to protect their interest in the collateral of loans secured by real estate. Some mortgage lenders, especially non-institutional lenders, may not require title insurance. Buyers purchasing properties for cash or with a mortgage lender often want title insurance (owner’s policy) as well.  A loan policy provides no coverage or benefit for the buyer/owner and so the decision to purchase an owner policy is independent of the lender’s decision to require a loan policy.

The buyer can expect to pay other fees like Documentary Stamps on the Deed (based on the actual sales price of $0.70 per $100 of value), recording fees (based on number of pages), and closing/settlement fees.  The closing/settlement fees charged by the closing agent for closing on the property and can depend on the difficulty and amount of work provided by the closing agent.  For example, the fee is much higher for a property being financed versus a cash transaction.

In most cases, buyers are charged for prorations. Charges show up as a debit on the buyer’s closing statement and as a credit on the seller’s closing statement. The credits increase the seller’s net profits and reimburse the seller for items the seller has prepaid for the time period the seller will not own the property.  Examples of prorations include real estate taxes and homeowners association fees.

Thinking of buying a new home?  You should consider using a realtor.  f you are interested in buying real estate (new home or investment property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511). As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Fishhawk Ranch, and our newest office in Valrico.  My email address is alanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.

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