Provide for closing costs
The term closing costs covers those expenditures that will be made the day you take title to your property. These funds are in addition to the monies needed to pay the seller the contract price of the property.
If you are purchasing a house for 125,000, and you have obtained a commitment from the lending institution of a mortgage in the amount of $20,000, you will have to have $5,000 in cash or a certified check in hand on the day of the closing. In addition, there will be additional costs dependent upon the area of the country and the size of the transaction. Make inquiry of your broker and attorney as to your own personal commitments well before the closing dale.
Many embarrassing moments have occurred around the closing table when the purchaser discovered all the “extra monies” involved at that very late date. There are closing costs in every real estate transaction, and they should be considered in the earliest stages of the big decision, when you’re determining the total funds available for the purchase of property.
Most financial institutions require the borrower to pay monthly into an escrow fund a sum in addition to their regular monthly payment of principal and interest. This represents one-twelfth of the total property tax together with school taxes and insurance. The obligation to pay all property and school taxes, fire and liability insurance, when due, rests with the financial institution. These expenditures come due at various times throughout the year. The lending institution will usually require that a six-months advance be paid into the escrow fund at the time of closing.
Any taxes paid by the seller that cover any period beyond the closing date will be additional items of payment you will have to make at closing time. This sum will represent the amount computed from the day of closing. When you reimburse the seller for the pro rata taxes he has paid beyond the closing date, it is as if you had paid the taxes directly yourself.
All legal fees due your attorney, and the fees charged by the attorney representing the lending institution, are due at the time of closing. Don’t be shy about asking, “How much?” all along the line.
The cost of title insurance and any land surveys you have had undertaken will also be due at the time of closing. The cost of title insurance is paid only once, an amount computed on the basis of the total purchase price of your property. Also find out from your attorney, who will order your insurance policy in advance, what the cost will be, so that you are prepared for this expenditure as well as the others.
Many states have in effect what is known as a mortgage tax, the amount varying from state to state. This tax is paid only once and is computed on a rate per thousand dollars of each thousand dollars of mortgage obtained.
Average closing costs also include recording all legal documents, maps and other recordable instruments involved in the transaction, plus any other miscellaneous taxes that may be owed. It is also customary procedure for the purchaser to pay the seller at the time of closing for supplies of fuel oil, coal, wood, and so forth on hand. Guess estimates are eliminated about the amount of fuel oil on hand at the time of closing by having the fuel company fill the tank to capacity that day. The bill for that amount is the obligation of the seller, and you will then reimburse him for the full tank. Deposits for the power company and telephone company may be required at this time, to continue these services without interruption.
Except for those items specified “payable by certified check only,” most closing costs may be made by personal check. Your attorney and broker should advise you in advance of these details. Bring a generous supply of personal checks with you so you’re not caught short by some small unexpected item of expenditure.
Your attorney or the attorney representing the lending institution will give you an itemized accounting of all the costs involved in the closing. This summary should be retained by you as a matter of record, to say nothing of income-tax purposes. Many of these items are deductible on your federal and state returns for the current year. There’s a happy note!