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Closing Costs Can Take a Bite Out of a Budget

Special to The Times

The various fees associated with buying or selling a home are called closing costs. Buyers and sellers both pay closing costs, but decisions about who pays what vary from area to area. For example, in Los Angeles, sellers usually pay for title insurance. In San Francisco, the buyer customarily pays.

Buyers typically pay the following closing costs:
• Fees charged for obtaining a mortgage.
• Inspection fees.
• Homeowner’s insurance (must be prepaid for one year at closing).
• Transfer taxes if there are any (although the seller may pay these or they may be shared 50-50 between buyer and seller).

Your real estate agent or mortgage broker can tell you which fees are customarily paid for by the buyer in your area and how much they’ll cost.

Sellers’ closing costs typically include:
• Loan payoff fees.
• The real estate commission (in some cases, a portion of this may be paid by the buyer).
• Title insurance.
• Termite repairs (this is negotiable in some areas).
• All or part of transfer taxes and escrow fees, if there are any.

Sellers can get an accounting of the closing costs they’re likely to pay from their listing agent.

First-Time Tip:
The most expensive closing cost a buyer pays is often the loan origination fee.

Lenders charge points to originate a loan. One point is equal to 1% of the loan amount. A $240,000 loan with a one-point fee will add $2,400 to your closing cost bill.

This charge can be eliminated if you take a no-point loan. You’ll pay a higher interest rate on a no-point loan, but you’ll conserve cash. If you don’t plan to stay in the home for more than a few years, it may be cheaper in the long run to take a no-point loan and pay the higher interest rate.

Most lenders allow parents to give money to their children to use for a home purchase as long as the parents are willing to stipulate that the money doesn’t have to be repaid.

However, lenders usually require that the borrowers have some of their own money invested in the property.

For example, a lender would probably approve a loan for buyers with good credit if they had enough of their own money for a 5% or 10% cash down payment and gift money from their parents for the closing costs.

Also, there are loan programs for low-cash-down buyers that allow the buyer to finance some of the closing costs.

Another way to generate cash to pay for closing costs is to ask the seller for a cash credit at closing.

Lenders have restrictions on how much a seller can credit to a buyer (often no more than 3% to 6% of the selling price). Some lenders will allow credits only for such nonrecurring closing costs as title insurance, which is paid only once.

Keep in mind that when you ask the sellers for a credit, you are, in effect, asking them to lower the price of their property. If the sellers give you a $5,000 credit, their proceeds will be reduced by $5,000.

The Closing:
Cash-strapped buyers who are competing with other house-hunters may want to increase their offer price by $5,000 to offset their request for a $5,000 credit.

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Dian Hymer is a syndicated columnist and author of “Starting Out: The Complete Home Buyer’s Guide,” (Chronicle Books, Revised 1998). Distributed by Inman News Features.


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