How to Explain Closing Costs to Your Buyers
As a real estate agent, you can prepare your buyers for closing cost expenses by going through this helpful list with them. It’s the best way to make sure they understand exactly what they’ll be paying at closing.
Typical Costs of Closing Your Buyers Should expect
While no two home closings are alike (and therefore no two sets of closing costs), here’s an overview of most of the typical costs buyers can expect to pay before you hand them their house keys:
- Loan origination fees. These include the cost of processing the loan, and the fee for underwriting the loan. (Underwriting is the part of the loan approval process when the lender checks your buyers’ credit history and other factors to make sure they can repay their loan.)
- Appraisal and survey fees.
- Title insurance. This important policy is calculated based on the purchase price of the home.
- Homeowners insurance. The first year of this insurance is usually paid at closing, but your buyers have the ability to shop for insurance that provides them the coverage they need.
- Private Mortgage Insurance (PMI). Your buyers will pay this if their down payment is less than 20 percent. It protects the lender in the event the buyers default on their loan. You can remind your buyers that if they build home equity or pay their loan off past 20 percent, they can remove the PMI payment.
- Mortgage points. Also known as discount points. Some buyers pay these directly to the lender at closing in exchange for a lower interest rate on their mortgage.
- Property tax. A years’ worth of property tax is usually due in advance at closing. Be sure to mention to your buyers that their property may be reassessed after the loan closes — and that if the value increases, the property tax will, too. In this event, the amount the lender put aside in an escrow account may need to be adjusted to cover the difference.
- Closing or escrow fee. This expense pays the escrow or title agent who helps you close.
- Attorney fees. If your state requires your buyers to have an attorney, their fees may be bundled into closing costs.
- Miscellaneous fees. These smaller fees can include anything from the cost of your buyers’ credit check to a fee from the local government for registering their purchase. This may also include pro-rated taxes and pre-paid interest.
In addition to closing costs, your buyer will need their down payment, water escrow, and EMD. Be sure to schedule some time with your buyers to go over this list! They’ll appreciate gaining a better understanding of what they cover and to expect.
And remember, when you partner with an independent mortgage broker, they will act as your buyer’s go-to mortgage expert. Working with your buyers through the whole home financing process, they will also be able to answer any closing cost questions and help ensure your buyer is well-equipped to sign on the dotted line.
How to Help Buyers Estimate How Much They Should Save
Your buyer’s lender will give them a Loan Estimate document a few days after their loan application is approved. Ensure that your buyer reviews thoroughly and brings up any questions they may have to their independent mortgage broker. Then, prior to closing, they will receive a final Closing Disclosure with exact closing costs. Your buyer needs to compare these two documents closely and find out from their mortgage broker what kind of payment is acceptable. (A cashier’s check is usually preferred, but a wire transfer is usually required for amounts over $5,000.)
If you want to help estimate your buyers’ closing costs, many lenders have an online closing costs calculator you can use that should give them a ballpark estimate of what to expect.
A Prepared Buyer is a Satisfied Buyer
By going through this checklist and estimating your buyers’ closing costs as closely as possible, you’ll take some of the sting out of closing fees — and help make their big day as joyous as possible.
Ready to help make your buyer’s closing day seamless? Partner with an independent mortgage broker today.