Understanding the purpose of closing costs

On Behalf of | Sep 22, 2021 | real estate banking & finance, residential real estate | 0 comments

The financial aspect of buying and selling real estate in Florida encompasses several factors. Closing costs, in particular, reference the money required to cover various aspects of a transfer in homeownership.

When buyers and sellers understand what closing costs are, they can feel more prepared to negotiate the terms of this payment.

An extra cost

A common misconception of purchasing a home is that the sale price is the bottom line. However, additional fees, including closing costs, increase the amount owed. According to Realtor Magazine, on average, most closing costs comprise 2 percent to 5 percent of a home’s purchase price. Some of the fees typically rolled into closing costs include the following:

  • Homeowner’s insurance and PMI
  • Property taxes and HOA transferal
  • Home inspection and appraisal
  • Escrow items

Negotiating a price

Sellers and buyers often want to spend as little as possible on closing costs. Both parties have the opportunity to negotiate closing items as they determine an agreeable price for the home sale. According to Zillow, some buyers opt for a no-closing cost mortgage. This option allows them to evade extra fees at the time of purchase. However, some lenders roll these costs into the overall mortgage price or require a higher interest rate in exchange for no fees upfront.

Because not every fee rolled into closing costs is necessary, people may benefit from working with a professional to negotiate a fair payment on these fees. With a professional’s help, people can optimize their resources and have peace of mind knowing they have not forgotten any critical steps along the way.