It is important that a home buyer understand all of the costs involved in purchasing a home. These costs go way beyond the purchase price. Inspections, fees, appraisals, and on and on and on…. the terminology used in real estate can be extremely confusing for home buyers. What’s more, who pays for these things is even harder to figure out.
Real estate agents, title company officers, and mortgage providers deal with real estate transactions on a daily basis, so they understand this language. When it comes to what is known as the ‘closing costs’ it becomes even harder to understand for the average home buyer. Because closing costs can be, and often are, negotiated between buyer and seller, there are no clear-cut answers. Let’s start by taking a look at the closing costs that can appear on your closing statement:
- Upfront, prepaid, interest points
- Appraisal costs
- Title transfer costs
- Real estate agent fees
- Loan origination fees
- Property taxes
- Homeowner’s insurance
These closing costs are simply the extenuating costs of purchasing a home. But, they can’t just appear out of nowhere when it comes time to write the check. That’s where the ‘HUD’ comes in.
All closing costs must be disclosed on a form called the HUD-1 Settlement Statement. The HUD-1 must be signed by all parties in the transaction before it is legally considered complete. In most cases, the loan officer for the buyer and the buyer’s agent will review the HUD-1 with the buyer so there are no surprises when it comes to signing it at the closing table.
Included in the HUD-1 Settlement Statement are also any credits due to the buyer, such as the down payment amount, tax credit from the seller, buyer closing costs the seller has negotiated to pay, as well as any money held in escrow on behalf of the buyer, such as the earnest money deposit.
This is a long, long list of money in and money out. Many of the terms may be confusing to you, the buyer. Don’t be afraid to have your agent explain, in detail, each and every item and provide supporting documentation to help you understand. A good real estate agent and loan officer will provide a true copy of the estimated HUD-1 prior to your closing. You may even want to obtain a blank HUD-1 form to read through just so you are prepared to ask questions before the figures get filled in.
Closing costs are often said by home buyers to be the most confusing part of the entire home buying process; even more confusing than inspections, offers, and contracts. These costs deserve individual attention from both you and your buyer’s agent. Be sure to insist on being fully informed as to the detail of each cost. After all, you are footing the bill for this large investment of a home and you deserve to know everything that involves your money.