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When you purchase real estate, there are expenses -- known as closing costs -- you pay to finalize the transaction, over and above the cost of the property.
In some cases, the seller may offer to pay certain closing costs to attract buyers or close the sale more quickly. Closing costs vary depending on the area where the property is located and are either prepaid or non-recurring.
Prepaid costs are expenses that recur periodically, including home insurance premiums and real estate taxes.
Non-recurring costs pay for securing a mortgage and transferring the property, and may include a filing fee to record the transfer of ownership, mortgage tax, attorneys' fees, credit check fees, title search and title insurance expenses, home inspection fees, an appraisal fee, and any points, or up-front interest charges, you have agreed to pay the lender.
The lender will give you a good faith estimate (GFE) of your closing costs before the closing date, so you'll know approximately how much money you need to have available at closing -- usually 5% to 10% of your mortgage.
Many closing costs are tax deductible, so it's a good idea to consult with your tax adviser.
Technically, only those fees and expenses necessary to close a sale or a mortgage, such as document preparation, the fee for the actual closing itself, and perhaps overnight delivery charges.In common language,though,the phrase has come to mean all expenses associated with a closing with the exception of the actual purchase price of the property and any lender fees.Rather than specifying that a buyer and seller will share closing costs equally,the better practice would be to spell out all anticipated expenses and the allocation for payment.
Examples of potential expenses include
• Preparation of closing documents
• Deed preparation
• Expenses associated with clearing title defects, such as preparation of affidavits or quit- claim deeds
• Title inspection
• Owners' title insurance
• Lender's title insurance
• Lender-required policy endorsements
• Deed recordation fees
• Mortgage recordation fees
• Transfer taxes (which can be sizable in the case of the New York mansion tax, for example)
• Closing agent fees
• Transfer fees imposed by condos, homeowners associations, or co-op boards
• Listing agent's commission
• Selling agent's commission
• Cost of wood infestation report and clearance letter
• Cost of survey
• Cost of appraisal
• Cost of required inspections
• Escrow fees
• Prepayment penalties
• Prorated real estate taxes, insurance, and/or dues
Costs that the borrower must pay at the time of closing,in addition to the down payment.
See Settlement Costs.