For every real estate transaction, there are always closing costs to account for. As a property buyer, you have to keep spare funds so that you can cope with end of transaction fees. If you are the property seller, you should also think about closing costs before you even come up with the asking price for your house. The truth is closing costs can add up really fast and if you have done your calculations wrongly, you will be the losing party in the end.
Are You the Property Seller?
As the seller, if you have put your house up for sale at $500,000 successfully, it will be wrong to think that you will receive a check for that exact amount you are asking for. This is because when your house sale is confirmed, there are a range of fees that you might have to shelve out, which can include the following:
Loan Payoff Costs: Since you have now sold your house, it’s time for you to pay off the mortgage on your house. In many cases, there is a prepayment penalty for your loan and with the addition of prorated interest, the final amount you need to pay to close your loan will be slightly higher than what you see in your loan balance.
Repair Costs: Before signing the deal, property sellers are expected to pay for repairs that might be highlighted by a home inspection. Although your realtor will allow you as the seller to place a dollar cap on the amount you are willing to pay for repairs, you risk losing the real estate deal if both you and the buyer cannot agree on the repair amount in the case that the repairs exceed your set amount in the sales contract. Therefore, you should always factor in repair costs in your asking price.
Realty Transfer Fee (RTF): In states like New Jersey, a RTF is collected from sellers typically at closing. Do note that certain demographic groups can receive a discount on the RTF, such as the physically disabled and senior citizens. The RTF is based on your house sale price.
Real Estate Agent Fee: For most house sales, the agent’s commission is 6% on the average. If your house is sold for $500,000, then you have to pay $30,000 to your agent at closing. The money is then usually split with the brokerage associated with the buyer’s agent.
Are You the Property Buyer?
If you have agreed to buy a gorgeous house for $500,000, do not be mistaken into thinking that that is all you have to pay for the house property purchase. In most cases, you are responsible for closing fees that can include:
Attorney Fee: Depending on the nature of your real estate transaction, you may have to hire an attorney for the property purchase. Attorneys usually charge $1,000 to $2,000 for such services.
Title Search Fee: To ensure that the property you intend to buy is legally available from the seller, you need to conduct a title search with the help of the title company. This fee is usually between $75 and $100.
Credit Score Report Fee: When you are asking for a mortgage loan for the new house you are buying, it’s possible that you have to pay a fee to the mortgage company to examine your credit score. This usually costs around $50.
Underwriting Fee: The mortgage company will also have to research on the amount of loan you can be approved for. This underwriting fee averages around $800.
Processing Fee: To be able to process your loan application, you are expected to pay a processing fee to the lender. This fee is usually capped at $1,000.
You Don’t Have to Feel Overwhelmed by Closing Costs
Industry surveys indicate that closing fees can cost up to as much as 6% of the transaction total. However, whether you are the seller or buyer, there are many ways to manage closing costs. For example, certain costs that are normally liable for the buyer can be shifted to the seller, especially if you know how to negotiate well in a buyer’s market. On the other hand, in a seller’s market, you will be able to think about the closing costs and negotiate with your buyer for a higher house price.
There are many ways to tackle these closing costs, but one of the best methods is to have a resourceful agent on your side. If you are working with an experienced realtor, he will be able to advise you on the strategies you can use to reduce the closing costs you have to pay out of pocket. Also, the negotiation skills of your realtor can be vital in helping you slash down some of these costs at the closing table. If you want to find out more on how to reduce closing costs, feel free to contact us at NJLux today.