For Sale by Owner Guide
Guide for BuyersSee all Buyer Guide topics
Your Closing Costs
Closing costs are a mystery to most first-time buyers. One reason is that they aren't standard and they vary from state to state - and factors such as your loan balance can make a difference in the overall closing costs. Terminology varies too.
In order to compare, ask the following questions:
- What is your best estimate of what it will cost me to close this loan?
- Does your estimate include only your lender fees?
- What fees are you including in your estimate?
Estimate Closing Costs
Call several lenders for a quote that includes all of the closing costs and an itemization of the fees. Since most lenders will allow you the option of paying points to get a lower interest rate, or not paying any points to get a higher interest rate, make sure each lender gives you the same interest rate quote and tells you the associated discount points (lenders will vary the associated points to offer the same rate). Then you can make an apples-to-apples comparison of the rate offered from one lender to another.
In theory, the APR (Annual Percentage Rate), which is required to be disclosed by the government, is a good tool to compare rates across different lenders. That's because it includes most closing costs expressed in the form of a rate. However, it doesn't allow you to compare the cost of financing among different lenders unless they are offering the same interest rate or unless the quote is a no-points quote.
You should also know that the higher the points paid up front, the lower the interest rate - and thus the APR. That may be a fine way to pick a loan if you're planning to stay in your home forever, but it probably will hurt you if you only end up staying in your home a few years.
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Who Pays Closing Costs?
The contract should stipulate who will pay the buyer's and seller's closing costs and the various transfer and recordation taxes that most localities and states charge when property is transferred. Who pays these costs is almost always negotiable between buyer and seller, but there are usually common practices in each locality. Check our database or contact an escrow officer or real estate attorney to determine the common practices for your area. It is not unusual for a buyer to ask the seller to pay some of the closing costs, including points on the loan, transfer and recordation taxes, and other closing costs. It is best not to try to list all closing costs that the seller will pay, rather simply to agree on a gross amount to be applied to closing costs as deemed acceptable to your lender. Generally, a lender will not allow a seller to contribute more money than the buyer can actually spend in closing costs (in other words, you cannot take cash away from the settlement).