The closing is the process by which ownership of a property is transferred from seller to purchaser. Going to a closing can be unsettling because purchasers are usually required to sign a seemingly endless pile of documents, most of which are written in legalese.
Before going to the closing, it is important to become familiar with the following terms and charges.
- Loan discount (points) – The largest portion of your closing costs, if obtaining a loan, would be the points which lenders require to make the yield on the loan more profitable. A point is one percent of the loan amount, so if you’re borrowing $90,000, one point would be $900. Typically points are tax deductible if they are paid separately and not deducted from the loan amount. Oftentimes, points will reduce your interest rate, thus reducing your monthly payment.
- Loan origination fee – A lender will charge a fee for the cost of processing the loan. This is usually calculated as a percentage of the loan amount.
- Earnest money – This is the deposit paid to show the seller your intention to purchase the property. As a general rule, this amount will be credited to the buyer at closing.
- Appraisal fee – This is an estimate of the fair market value of a home. Appraisals help both the lender and the buyer determine if the sales price is consistent with the actual value. A certified appraiser inspects the house and neighborhood and makes an estimate based on the price of comparable houses and other factors.
- Credit report – The lender typically charges the buyer for a report verifying credit history.
- Settlement closing fees – This fee, anywhere from $150 to $250 is usually split 50/50 with the seller. The settlement agent makes this charge for performing an up-to-date check on the title, conducting the closing, recording documents and disbursing funds.
- Survey fee – Costs vary depending on the type of survey being performed. On homes, lenders usually want an ILC (Improvement Location Certificate) drawn by a licensed surveyor, showing that there are no encroachments on the property.
- Recording fee – Documents such as the Deed and Deed of Trust need to be made public record at the County Courthouse. Recording fees cover the administrative costs of recording, typically $6 per page.
- Tax certificate – At a cost of $10, this document shows whether or not the real estate taxes on the property have been paid.
- State documentary fee – Paid to the County Clerk and Recorder, this charge is based on a percentage of the purchase price of the property. For example, a $3.50 documentary fee would be paid on a $35,000 lot sale.
- County tax proration – In Gunnison County, real property taxes are paid in arrears, that is 2000 taxes are paid in 2001. At closing, the buyer is usually credited on taxes for the days the seller has owned the property that year. When taxes come due the following year, the purchaser will be responsible for paying the entire tax amount.