Closing Costs: What They Include, And What They Might Not

Closing (also called settlement) is the final step in a Real Estate Transaction. At closing, money is paid from Buyer to Seller, ownership is legally transferred from Seller to Buyer, various transaction charges and fees are paid, and documents related to the sale and Mortgage are recorded with the local County.

The phrase "Closing Costs" refers to charges and fees that buyers and sellers pay either as a settlement statement debit or out-of-pocket which are NOT included in the Purchase Price, Deposit, Down Payment, or Mortgage Loan Amount.

Depending on who you're asking, some charges paid in relation to a Real Estate Sale are included in Closing Costs and some are not. This is the source of much confusion because most of the charges are third party pass-throughs and can be categorized differently by various service providers to the transaction.

As you read this article, keep in mind that whether or not a Transaction-Related cost is openly called a Closing Cost, any charge or fee outside the contract's sale price is still additional money either the Buyer or Seller has to pay.

Let's look at some of the charges associated with closing a real estate transaction, categorized by who receives them:

Lender Charges (Buyer paid when using Mortgage Financing)
• Origination, Processing, Underwriting Charges
• Credit Report (POC - see below*)
• Points - used to "buy down" an Interest Rate
• Per Diem Interest (charged for the days after closing, yet before the first scheduled Mortgage Payment)

Third-Party Service Provider Charges (Buyer and/or Seller separately paid)
• Property Appraisal
• Survey and Elevation Certificate
• Property Insurance - Hazard, Flood, Windstorm (POC*)
• Attorney or Title Company fees for conducting settlement
• Title Search, Title Insurance
• Open Building Permits / Code Violations Search
• Inspections - Home, Pest, Flood Certifcate, Wind Mitigation (POC*)
• Real Estate Sales Commissions
• HOA / COA Application and Transfer Fees (POC*)
• Association Estoppel Fees
• HOA / COA Assessments (prorated per closing date)

Government and Municipal Charges (Buyer and/or Seller separately paid)
• Property Taxes (prorated per closing date - County)
• Documentary Stamps (Transfer Taxes) on Deed (.7% of Sale Price - State)
• Doc Stamps on Mortgage (.35% of Mortgage Amount - State)
• Intangible tax on mortgage (.2% of Mortgage Amount - State)
• Public Records Recording Charges (County)
• Transfer Taxes to incorporated town or City
• CDD or MSTU pro-rations and payoffs (local special-purpose taxing areas)

Escrow Funding (Buyer paid)

When Mortgage financing is used for the purchase, partial Homeowners Insurance and Property Tax Payments are collected with the Monthly Mortgage Payments and held in an Escrow Account by the Mortgage Servicer.

This is so enough of the Buyer/Borrower's own money is available to pay the next Insurance and Tax Bills when they are due. Failure to pay either one can place the Loan in Default, and Escrowing reduces the chance of non-payment.

Depending on the closing date and when the bills are due, 2 to 6 months of Property Tax and Insurance Payments may need to be paid into Escrow at closing.

Important - Insurance is paid in advance (for the coming year), while Taxes are paid in arrears (for the past year). Because of this, lenders require proof of the first full year's Property Insurance Premium having been paid before closing. This is in addition to Initial Escrow Funding.

Some out-of-pocket Buyer costs are Paid Outside Closing (POC) and may not show up on either the Preliminary or Final Settlement Statement. POCs can include: Property Appraisal, Credit Report for Financing, First year's Insurance Premium, HOA / COA Application Fees, & Home inspections (not required, highly recommended).

Here in Florida, the choice of contract (and which boxes are checked) used to document and control the transaction indicates whether the Buyer or Seller pays certain negotiable costs. However, just about everything in a Florida Real Estate Deal is open to negotiation between the Buyer and the Seller.

There we are, a quick outline of Closing Costs aimed at helping Buyers and Sellers better understand what it takes to close a Residential Real Estate Transaction in Florida. Your closing Title Company or Attorney will be happy to provide details and projected costs for your purchase or sale.

Editor's Note: Christopher Carter is NOT an attorney. He does not give legal advice. For interpretation and application to specific circumstances of anything you read in this article, you must speak with a Florida-Licensed attorney.

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