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Loan-Related Closing Costs

Other Closing Costs

There are certain standard costs associated with closing the sale of a house. These fees are split between the buyer and the seller, as spelled out in the sales contract.

As I negotiate the sales contract for you, I will not only work to get the sales price you want, I will also work to limit the number of closing costs for which you will be responsible.

I will walk you through the closing costs, answering any questions you may have explaining which costs are decreed by law to be yours and which are negotiable.

Good Faith Estimate

Buyers will receive a "Good Faith Estimate" of closing costs at the time the loan application is submitted to the lender. The estimate is based on the loan officer's past experience and may not include all the closing costs. I will be glad to review the "Good Faith Estimate," answering questions and highlighting missing costs and estimates I believe to be low. 

Property Taxes

This is the one closing cost that is often prorated betweenthe buyer and seller. If the seller has already paidthe annual property taxes, the buyer typically reimburses the seller for the period in which the buyer will be occupying the property.Likewise, if the taxes have not yet been paid, the seller typically reimburses the seller for the period in which the seller occupied the property.

Transfer Taxes and Recording Fees
This is the cost for transferring ownership of the property and recording the purchase documents. The fee is often calculated as a percentage of the sales price.

Insurance Closing Cost

Homeowner's Insurance
This insurance covers replacement costs for damages caused by fire, wind or other disaster that might affect the value of the property. Typically, the insurance also includes personal liability and theft coverage.

Flood or Quake Insurance
Additional hazard insurance coverage that is required for homes located in a designated hazard zone as established by the Federal Emergency Management Agency (FEMA). As we tour houses, I will let you know if the property resides in a hazard zone.

Private Mortgage Insurance (PMI)
Insurance required for conventional mortgage loans when the borrower's down payment on the house is less than 20 percent of the loan value.

Title Insurance
This policy protects both the buyer and lender by insuring a clear chain of title. (In other words, it insures that that the person who sells the house has the legal right to do so.)

Earnest money shows you’re serious

Typically when an offer to purchase a property is made, you, as the buyer, will also pay an “earnest money” deposit. This deposit shows the seller that you’re serious about the offer to purchase the property.

The amount of earnest money deposit varies based on the type of property being purchased and local market conditions. As your real estate professional, I’ll help you determine the appropriate amount to pay as an earnest money deposit. In the Metro Phoenix market, you can expect to pay approximately 1% of the purchase price in earnest money at the time we open escrow. These funds apply towards your purchase price at close of escrow.

The sales contract will dictate who holds the earnest money.  Usually the seller’s real estate agent will deposit the earnest money in a trust or escrow account until closing.   We will always use a title company to hold the earnest funds.

In the event the sale doesn’t close, the sales agreement generally spells out the conditions under which you would forfeit the earnest money.  Generally if the seller meets all the terms of the contract, the seller will keep the earnest money.  If the seller does not meet the terms of the contract, you, as the buyer, may receive a total or partial refund of the earnest money. Remember, your earnest money is 100% fully refundable for the first 10 calendar days after your contract is accepted and signed by all parties (your inspection period). After that, everything is negotiable and it becomes a bit more difficult to protect earnest funds.

What is a 1031 Exchange?

In nutshell, a 1031 tax deferred exchange, refers to section 1031 of the IRS tax code. This section discusses the ability of taxpayers to defer the payment of capital gains taxes on certain types of property (real property or real estate being one of them) if certain criteria are met. This has obvious advantages to a real estate owner or investor looking to sell one property, and "trade up" into another, more expensive piece of real estate.

1031 TIC - Tenants in Common

One of the most popular subjects today with regard to 1031 exchanges is using a Tenant in Common structure to allow an individual to trade his/her ownership interest into a larger property with other ownership interest types. When it somes to 1031 Exchanges and TIC there are many unknowns, but it appears for now that the IRS is content to let things go along on the path they are on. Many people are now able to purchase larger, investment grade properties that they would not have had access to before due to the high barriers to entry (a lot of $$$). The TIC structure is capable of this and more.

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