Closing Costs
What Are Closing Costs
The various fees associated with the buying or selling of a home are called closing costs, e.g., lender fees incurred by the buyer, or broker's fees incurred by the seller. Certain fees are automatically assigned to either the buyer or the seller; other costs are either negotiable or dictated by local custom.
Typical Buyer Closing Costs
When a buyer applies for a loan, lenders are required to provide them with a good-faith estimate of their closing costs. The fees vary according to several factors, including the type of loan they applied for and the terms of the purchase agreement. Likewise, some of the closing costs, especially those associated with the loan application, are actually paid in advance.
Some typical buyer closing costs include:
- The down payment
- Loan fees (points, application fee, credit report)
- Prepaid interest
- Inspection fees
- Appraisal
- Mortgage insurance
- Hazard insurance
- Title insurance
- Documentary stamps on the note
Prorations
At the closing, certain costs are often prorated (or distributed) between buyer and seller. The most common prorations are for property taxes. This is because property taxes are typically paid at the end of the year or the quarter for which they were assessed. Thus, if a house is sold in June, the sellers will have lived in the house for half the year, but the bill for the taxes won't come due until the following year! To make this situation more equitable, the taxes are prorated. In this example, the sellers will credit the buyers for half the taxes at closing. In Vermont, each town's fiscal year for property tax purposes is July 1st to the following June 30th. In Stowe, taxes are due in four equal installments on Feb 10 , May 11, August 11, November 10.
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