Planning For Closing Costs? It’s About More Than Your Down Payments.

Planning For Closing Costs? It’s About More Than Your Down Payments.

Closing costs refer to the miscellaneous payments made at the end of a real estate transaction. They are payments for services rendered to the buyer or seller during the course of the purchase transaction.

These payments are made when it is time for the title and deeds of the property to be transferred from the seller to the buyer in order to make the transaction and sale legal. They are not included in the down payment when buying a property because they are miscellaneous and so it is important to make sufficient provisions for them when the time comes.

The payments aren’t made to the buyer or seller. They are made by either the buyer or the seller to other parties with a vested interest in the transaction like a real estate agent, the attorney and the local government department that will process the transfer of property and legalize the transaction.

The costs can vary from 3% – 6% of the purchasing price, or selling price, depending on whether the buyer or seller is the one paying.

Common costs include attorney’s fees, mortgage insurance, real estate agent’s commission, processing fees for the local government office, costs of transferring the title and deed of the property.

Typically, the costs are split between the buyer and the seller, and they should be regarded as part of the total costs of the property.

For example, let us assume that the selling price of a house is 40 million naira. When you add closing costs of about 5% which is 2 million naira, you get a total of 42 million naira which is then regarded as the true cost of the house.

A major mistake that a lot of people are not new to is neglecting closing costs when drawing up their budget. Most people just leave it out entirely or fail to plan for it adequately enough. So when the time comes to close the deal and pay the closing costs, they are taken unawares and begin to scramble to come up with the money.

When making plans for purchase, even before you put down the down payment, you should factor in the closing costs, so at the end of the day, you won’t be caught with your pants down.

It is important to know however that as the buyer, you are not obligated to pay all the closing costs. You should have a discussion with the seller, negotiate and come to an agreement for him to cover some of the costs.

So what costs should the buyer pay and which should the seller cover?

Usually, if he is getting a mortgage, the buyer pays all fees that are related to the mortgage (after all, this does not really concern the seller in any way). The buyer also pays for the fees originated from having a qualified surveyor or evaluator take a look at the house and give his (the evaluator’s) opinion and is responsible for buying insurance to cover the house. These costs are usually no business of the seller.

On the other hand, costs such as real estate agent’s commission or cut are covered by the seller. This is in return for getting a buyer for the property and also stepping in during negotiations.

However, sometimes, the buyer and the seller may come to an agreement to split some of the costs like the costs for transfer of deed and title or attorney’s fees. The work of the attorney is basically to draw up an agreement and contract between both parties so it is very necessary to pay him as at when due.

Like it was stated earlier, closing costs are an important part of a real estate transaction, almost as important as the down payment. You wouldn’t want to have the service providers coming after you over unpaid bills, would you?

In order to avoid going into a frenzy when the time for payments come, you should include them in your budget. if you are taking out a loan to cover the down payment, then you should make sure that you take out a large enough loan that will sufficiently cover the closing costs. If you are opting for a mortgage, you should include the closing costs in your quotation.

It is a very common mistake to underestimate the importance of closing costs, and you should try as much as you can to avoid that mistake. When taking out loans, a lot of people just focus on getting enough money for the down payment and shove the closing costs to the back of their minds, only to have it come back and bite them in the behind later on.

So, when you’re making a budget or taking out a mortgage, you should include the closing costs as part of the major details, as it makes sure that the process goes as smoothly as possible.

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