What are Closing Costs?
Closing costs are the services fees, interest charges, and taxes paid by the buyer and the seller as a result of a home purchase. These costs include title insurance, loan points, document fees, prepaid interest, escrow or closing day charges, and property taxes which are due at the closing, also called the settlement, of a real estate transaction. As to who pays what, this would depend on local custom and the negotiation between the buyer and the seller.
Average Closing Costs in Maryland Waterfront Communities
Average Closing Costs for Buyers
Generally, the closing costs for homebuyers amount to approximately 3% to 4% of the purchase price. The largest portion of a buyer’s closing costs are the transfer and recordation charges, the combined total of which are 1.66% of the purchase price. According to the Maryland Residential Contract of Sale, transfer charges are split equally between the buyer and seller, but this item is negotiable.
A buyer who is getting a loan will also be paying for lender fees, which will cover the loan origination and application charges, credit reports, verifications, etc. On average, origination fee costs between $600 to $800; credit reports, $25 to $50; flood certification, $10 to $20; condo verification, $100 to $150; and tax service, $75 to $100. If the buyer’s down payment is less than 20%, their loan will incur mortgage insurance, and this will involve additional cost.
An appraisal is required to verify the value of the property and the fee typically ranges from $300 to $400. Home inspections would cost between $225 and $400. The cost of both charges would depend on the type and size of the house. Settlement/closing fee would cost $100 to $200; title examination, $400 to $500; and document preparation, $100 to $150.
Average Closing Costs for Sellers
The combined total of property transfer and recordation charges in the state of Maryland amount to 1.66% of the property’s sale price. For example, the transfer and recordation charges for a $500,000 home property sale would total $8,300 and these are due at settlement. In this state, the buyer and the seller split these costs equally, so each would pay $4,150, unless the buyer negotiates with
the seller to pay a higher percentage of these costs or to pay for the entire amount.
The standard rates of real estate agent commissions range from 5% to 6%. If the property being sold is part of a homeowners or condo association, the seller would have to give the buyer a resale disclosure package from the association, which would cost between $200 and $300. If the seller is not a Maryland resident, they will be required to pay withholding taxes, and the rates are 7% for individuals and 8.25% for entities. Title transfers and mortgage release fees cost around $150 to $250.
Breakdown of Closing Costs in Maryland Waterfront Communities
• Lenders Fees
• Origination Fee
• Credit Reports
• Flood Certification
• Condo Verification
• Tax Service
• Appraisal Fee
• Inspection Fees
• Title Company Fees
• Settlement/Closing Fee
• Title Examination
• Document Preparation
• Title Insurance
• Broker Commissions
• Prorations and Adjustments
• Association Resale Packages
• Maryland Non-Resident Withholding Tax
• Title Transfers and Mortgage Releases
How Can a Homebuyer Lower Closing Costs?
For a first time homebuyer, the list of closing costs can be very intimidating and confusing, but remember that most of these can be negotiated. Working with a real estate expert would be ideal, so that you can be given the appropriate information, guidance, and assistance all throughout the process. Some of the things that your real estate partner would suggest would be the following:
1. Do Some of the Legwork in Exchange for a Rebate on the Broker’s Commission
Choose a brokerage firm that would agree to let you do some of the legwork yourself and, in return, give you a rebate on their commission. Aside from negotiating to lower your broker’s commission, you can also ask them to give you a percentage of their broker’s commission when you do certain tasks without the help of the broker, such as checking property listings and going to open houses.
2. Take the Time to Learn More About the Fees and Charges in Your Closing Costs List
One of the biggest mistakes homebuyers make is accept the closing costs that are presented to them without bargaining to reduce them or take the vague ones out. Some of them simply don’t want to spend time to learn what each of the costs are because the list seems too complicated. However, being familiar with these costs allows buyers to negotiate and get the best deal from this real estate transaction.
3. Shop Around and Get Quotes from at Least Two Lenders
According to a recent study, a homebuyer can save as much as $1,500 by getting one additional quote and at least $3,000 by requesting quotes from five lenders. Apparently, lenders offer different rates and, when they become aware that you are considering other lenders, they can get pretty competitive. By shopping around for lenders, you are not only able to compare different rates and choose the lowest ones, you also drive these lenders to offer more competitive rates.
4. Schedule Your Closing Date to the Latter Part of the
Some of the closing costs, such as prepaid daily insurance charges, can be reduced with the right timing. By this we mean that when you set your closing date towards the end of the month, the number of
days remaining in that month would be less and this would result to lower charges. This is because your cash outlay for prepaid or “per diem” interest is computed based on the number of days from your loan closing up to the beginning of the succeeding month.
While closing costs seem overwhelming at first, homebuyers need to be intimidated by them. Almost everything is negotiable and the total amount that is originally presented to you can be reduced. If you are in the market to buy a home in any of the amazing waterfront communities in Maryland, I would be more than happy to help you throughout the entire process. Feel free to give me a call at 443-992-5700 or email me at [email protected] if you have any questions or would like to schedule an appointment.