You made it to closing!
It may have been stressful, emotional, or completely pleasant for you to get to this day, but no matter how you got here, you made it. There are just a few papers to sign, and then you will be handed the keys to your new home. Before you get to that final closing table, however, you will be handed a HUD-1 form that gives you a breakdown of all the money being exchanged in the transaction. Part of this will be closing costs. Closing costs are the different fees and taxes required by different institutions in addition to the down payment that you are paying to your lender.
In addition to the money that is owed at closing to your lender at closing for the down payment on your home will be the money that is owed to various institutions for making closing possible. These closing costs are typically about 2-5% of the price of the home. They include everything from the cost of running your credit report to government recordation taxes. Some of these costs are one-time fees and some are the first in a recurring line of payments. These recurring payments include property taxes, HOA fees, and interest payments, among others. Some of the one-time fees or taxes include, but are not limited to, fees for the title search, appraisal, survey, recordation taxes, and discount points for a lower interest rate. You will get a complete list of what the fees and taxes are and how much they cost at the beginning of your real estate transaction from your lender in the form of the GFE, or Good Faith Estimate, and then again at least one day before closing in the form of the HUD-1. While there may be some discrepancies between the two, they should not be more than 10% different.
You may be familiar with the term “buyer pays closing costs.” While that is certainly true for a number of the different fees and taxes, you should keep in mind that in real estate, almost everything is negotiable. If putting 20% down on your home just about completely depletes your bank account, you may want to consider negotiating that the seller pay some of the closing costs. A few of the fees and taxes that can be negotiated include attorney’s fees, survey fees, title insurance fees, title search fees, recordation taxes, any home warranties, and any of the pro-rata property insurance, property taxes, HOA fees, or interest fees that are paid in advance. Sometimes the parties who pay certain fees and taxes completely depends on the jurisdiction of the real estate transaction. Sometimes the buyer might initially pay the fee or tax, but is reimbursed by the seller.
With all of the money exchanging hands at closing, it is a very good idea to become familiar with the HUD-1 form. Some of these fees and taxes are small potatoes in the grand scheme of the high dollar amounts that are being exchanged, but doing your due diligence in making sure the numbers are correct ensures that you are not overpaying for anything. Be sure that you talk to your Hagan agent about what you can afford, how much cash you expect you will have in hand by the time closing comes, and any other monetary concerns you might have as soon as possible. When you are negotiating the contract is the best time to talk about these numbers, but certainly by the time you receive the GFE. By the time you receive the HUD-1, you should have all of these numbers worked out so that there are no surprises the day before you’re supposed to close. However, it is not unusual for something to come up, and your Hagan agent will be prepared to be your advocate until the last paper is signed.