Closing costs

Closing costs are funds required to close on a home. These costs are not only paid for the services of the lender, but also many of the third parties involved with the transaction. When a loan is involved, the buyer fees will be higher. A savvy agent can negotiate with the seller to have these costs paid by the seller.

Application fee (buyer)
If a loan is involved, some lenders will charge an application fee. Nearly all lenders do not charge this fee. If a lender charges an application fee, see if it’s possible to get it waived.

Appraisal (buyer)
An appraisal is paid by the buyer for the benefit of the lending institution. The appraiser will provide their opinion of value and to make sure the home conforms to the type of loan that’s being administered. The appraised value must come in at the contracted sales price or higher to move forward. If the appraisal value is below the sales price, the parties to the contract must negotiate and make up the difference in sales price and appraisal value. If there are any work orders called by the appraiser, generally, the work must be completed prior to closing.

Escrow Fee (buyer and seller)
Escrow is a neutral third party working on the behalf of the buyer and seller. A licensed escrow officer will handle all documents to the contract and finalize the signings by the parties involved. All funds for down payment, deposits for taxes, loan documents, insurance, HOA dues, title, etc., are handled by escrow.

Courier Fee (buyer and/or seller)
If legal documents must be transferred, a fee for delivery will be charged. Normally, an escrow office will have one delivery service free of charge for buyer and seller.

Excise Tax (seller)
The state will require the seller to pay the excise tax (1.28% of the sales price). However, the cities, towns, or counties will also have their fee. In King and Pierce County the total amount tends to be 1.78% of the sales price.

Flood Determination (buyer)
A third party will research the home to see if it’s within a flood zone. If so, there could be extra fees for home insurance to protect against any flood damage.

Homeowner’s Association (HOA) fee (buyer)
If there is an HOA, escrow will collect fees as prescribed the association. Generally, two months of dues are collected at escrow. For a single family residence, the dues are typically $20-50/month. If it’s a condominium, the dues can vary from $200 to upwards of $2000+ per month, depending on the services provided by the association.

Homeowner’s insurance (buyer)
If you obtain a loan, it is required to have homeowner’s insurance. Your policy cost will be determined by amount of coverage, age of home, location, and deductibles. Escrow will collect 14 months of payment up front.

Lender’s Title Insurance Policy (buyer)
This is paid for by the buyer to protect the lender from any defects on title and protection in the future.

Loan Origination Fee (buyer)
This is a cost to administer the loan. If a lender charges this fee, it is normally 1% of the loan amount. There are tradeoffs to this fee and it’s best to compare costs and rates between lenders.

Owner’s Title Policy (seller)
The seller will pay to protect the buyer from any liability or defects on title and to make sure transfer of title is free and clear of any liens and judgments not permissible by lender and satisfactory to buyer.

Prepaid Interest (buyer)
Although not really considered to be part of closing costs, depending on the type of loan and date of close, there are interest fees based on a pro rated daily basis. This amount is derived from the principle and interest of the loan and focuses on the interest portion that accrues on the loan from the date of close to the date your first mortgage payment is due.

Processing Fee (buyer)
Processors collect all documents from the buyer, make contact with all third parties, and prepare the documents for underwriting review. Not all lenders charge a fee upfront. If not, the fee is normally “buried” elsewhere.

Property Taxes (buyer)
Depending on the date of close, up to six months of property taxes are collected at time of closing if there is a loan involved. If the lender allows the borrower to pay the property taxes on their own without having it wrapped in the monthly payment, the buyer can make arrangements to pay it on their own with the state of Washington.

Recording Fees (buyer and/or seller)
When documents are recorded for a real estate sale, there are fees to complete the transaction at the city or county level so they can maintain the record of sale.

Transfer taxes (buyer)
When title passes from the seller to buyer, the seller pays to transfer responsibility for tax payment to buyer.

Underwriting Fee (buyer)
It is a buyer fee charged by the mortgage company for an underwriter to review loan documents and determine what remains for loan approval. When the loan comes out of underwriting, it is conditional subject to providing last minute documents.