Closing Fees
Charges for services such as loan processing, title work, settlement, document preparation, and recording.
Closing Costs for Buyers and Sellers
What Are Closing Costs?
Closing costs are the expenses involved in completing a real estate purchase or sale. They can include mortgage charges, title services, recording fees, insurance payments, property-tax adjustments, and other costs connected with transferring ownership.
Both buyers and sellers may have closing costs, but they usually pay for different things. The final amounts depend on the loan, purchase contract, property, closing date, and location.
Closing costs are not one fixed percentage of the purchase price. A percentage may help with early planning, but it cannot tell you what a particular buyer or seller will actually pay.
Fees, prepaid expenses, deposits, credits, tax adjustments, and mortgage payoffs may all appear on the same estimate even though they serve different purposes. Urban Cool Homes can help you understand how those figures fit together and what they mean for your purchase or sale.
Closing Costs for Buyers
Common Closing Costs for Buyers
Depending on the home and the type of financing, a buyer’s closing costs may include:
- Mortgage origination, processing, and underwriting charges
- Discount points paid to obtain a lower mortgage interest rate
- An appraisal and other services required by the lender
- A title search and title insurance
- Closing or settlement services
- Recording fees and other government charges
- Mortgage interest paid in advance
- Homeowners insurance paid in advance
- An initial deposit into a mortgage escrow account
- Property-tax and assessment adjustments
- Condominium or homeowners association charges
- Other expenses required by the property, loan, or purchase contract
Not every buyer will pay every charge.
A cash buyer, for example, will not have mortgage-origination charges, discount points, or a lender-required escrow deposit. The buyer may still pay for title work, closing services, recording, insurance, taxes, association charges, and other expenses connected with the purchase.
Fees, Prepaid Expenses, and Escrow Deposits
A buyer’s closing-cost estimate can contain several types of charges.
Some are fees paid for work needed to complete the purchase. These can include loan processing, title work, settlement services, document preparation, and recording.
Other amounts are paid in advance. Prepaid mortgage interest generally covers the period from the closing date through the end of that month. The buyer may also pay the first homeowners insurance premium before or at closing.
An initial escrow deposit serves a different purpose. It places money into an account the lender will use to pay future property-tax and insurance bills. It is not another charge for providing a closing service.
These items may all be included in total closing costs, but they are not all fees in the ordinary sense of the word. Looking at each category separately makes the estimate easier to understand.
Prepaid Expenses
Expenses paid in advance, such as mortgage interest and the first homeowners insurance premium.
Escrow Deposit
Money placed into an account the lender will use for future property-tax and insurance bills.
Inspections and Other Expenses Paid Before Closing
Not every expense involved in buying a home is technically a closing cost.
A general home inspection and any additional property evaluations are often paid when the work is completed. An appraisal may also be paid before the closing date instead of being included in the remaining amount due.
These expenses still belong in the buyer’s total purchase budget. However, an amount already paid should not be counted a second time when estimating how much money will be needed at closing.
How Earnest Money Affects the Amount Due
Earnest money is a deposit made under the purchase contract. It is not an additional closing fee.
When the purchase closes, the buyer normally receives credit for the earnest money already deposited. That credit reduces the amount the buyer still needs to provide.
The deposit does not disappear, and the buyer does not pay it twice. It becomes one part of the calculation used to determine the final cash to close.
Three Different Buyer Amounts
Down Payment, Closing Costs, and Cash to Close
Closing costs, the down payment, and cash to close are related, but they are not the same figure.
Down Payment
The down payment is the portion of the purchase price the buyer pays instead of financing through the mortgage.
Closing Costs
Closing costs are the expenses connected with obtaining the mortgage and completing the real estate transaction. They do not include the down payment.
Cash to Close
Cash to close is the final amount the buyer must provide to complete the purchase.
Cash to close commonly includes the down payment and closing costs. The calculation then accounts for earnest money, seller credits, lender credits, deposits already paid, and other adjustments.
A buyer can therefore have one amount listed as total closing costs and a much different amount listed as cash to close. The cash-to-close calculation shows how the down payment, charges, credits, and earlier payments come together.
This is one of the most common points of confusion in a buyer estimate. Have a question about how your amount was calculated? Urban Cool Homes can walk through it with you.
How Seller Credits Affect Buyer Closing Costs
A seller credit is an amount the seller agrees to contribute toward certain buyer expenses.
It does not automatically reduce the purchase price. The credit is generally applied to closing costs or other expenses permitted by the purchase contract and the buyer’s mortgage program.
A buyer may not be able to use a seller credit for every expense. How much can be used depends on the contract, loan requirements, and final charges.
This matters when an offer includes a larger credit. The buyer should confirm that the expected closing costs provide enough permitted expenses to use it.
Closing Costs for Sellers
Common Closing Costs for Sellers
A seller may also have expenses deducted through the closing.
Depending on the property and purchase contract, seller expenses may include:
- Title or settlement charges assigned to the seller
- Deed preparation and recording expenses
- Charges for releasing a mortgage or other lien
- Agent compensation the seller agreed to pay
- Seller concessions toward buyer expenses
- Repair credits and other negotiated adjustments
- Property-tax and special-assessment adjustments
- Association dues, transfer charges, and unpaid assessments
- Attorney or document-preparation charges when applicable
- Other expenses assigned to the seller by the purchase contract
The way these expenses are divided can change from one transaction to another. A seller should base the estimate on the actual contract and written agreements rather than assuming every sale will be handled the same way.
Mortgage Payoffs and Other Seller Deductions
The seller’s closing statement may include a mortgage payoff, lien payoff, or another debt secured by the property.
These deductions reduce the amount the seller receives, but they are not the same as title, settlement, recording, or other closing-service fees. A mortgage payoff is money the seller already owes against the property.
The payoff can also be higher than the principal balance shown on the seller’s most recent mortgage statement. It may include interest through the expected payoff date and other unpaid amounts needed to close the loan.
The lender or loan servicer provides the final payoff figure. When estimating proceeds, it is important to allow for the fact that the current principal balance and final payoff may not be identical.
Closing Costs and Estimated Seller Proceeds
The contract price is not the amount a seller will necessarily receive from the sale.
Estimated seller proceeds are calculated by starting with the contract price and subtracting the amounts that must be paid or credited through closing. These deductions may include:
- Mortgage and lien payoffs
- Seller closing costs
- Agent compensation
- Seller concessions
- Repair credits
- Property taxes and assessments
- Association charges
- Other deductions required by the property or contract
A seller net sheet or preliminary closing statement brings these figures together and estimates what may remain after the transaction is completed.
The estimate can change before closing. A repair agreement, revised closing date, updated mortgage payoff, title issue, association balance, or tax adjustment can all affect the final proceeds.
Home Equity and Seller Proceeds Are Not the Same
Home equity is generally the difference between a property’s value and the debt secured by it.
Seller proceeds use a different calculation. They begin with the actual contract price and subtract the mortgage payoff and other costs of completing the sale.
A homeowner may therefore have substantial equity without receiving that entire amount at closing. The home may sell for more or less than an earlier estimate of its value, and the sale creates expenses that are not part of a basic equity calculation.
Owners who are still establishing a likely sale price can begin with an Urban Cool Homes home valuation. That estimate can help begin the conversation, but it is not the same as a seller net sheet.
Why Closing Costs Vary
Two similarly priced homes can produce different closing costs.
How the Buyer’s Loan and Contract Affect Closing Costs
The loan program, lender, loan amount, interest-rate choices, mortgage insurance, appraisal requirements, and escrow deposit can all change the buyer’s amount.
One buyer may pay discount points to obtain a lower interest rate. Another may accept a different rate and avoid that upfront expense. One loan may require mortgage insurance or a larger escrow deposit, while another may not.
The contract can further change the calculation through seller credits, lender credits, earnest money, and other negotiated adjustments.
How the Property and Contract Affect Seller Costs
Seller expenses depend on the purchase contract, existing mortgage and liens, association balances, taxes, assessments, compensation agreements, concessions, and repair credits.
The closing date matters as well. Moving the date can change prepaid interest, mortgage payoff interest, property-tax adjustments, association dues, and other amounts calculated through a specific day.
Wichita and Sedgwick County
Specials and Property-Tax Adjustments in Sedgwick County
In Wichita and Sedgwick County, buyers and sellers may encounter special assessments commonly called specials.
Specials are assessments placed on a property to pay for improvements in the immediate area, such as streets, sewers, and sidewalks. They are commonly added to the property-tax bill for 10 to 15 years unless they were paid off earlier.
Remaining specials can affect more than the tax amount shown in a listing.
A buyer needs to know the current amount still attached to the property and how it affects the ongoing cost of ownership. A seller needs to know whether the remaining specials will continue with the property or affect the expected proceeds.
The current property record and closing estimate are what matter. The balance should not be assumed from the neighborhood, the age of the home, or information carried forward from an older listing.
Property-tax payment timing can also affect the closing calculation. In Sedgwick County, real estate taxes may be paid in full in December or divided between payments due in December and May.
Depending on the closing date and whether those payments have already been made, the closing statement may show a property-tax charge or credit between the buyer and seller.
When we help with a Wichita-area purchase or sale, we look at the current property record and actual closing figures rather than relying on a broad estimate.
Kansas City Metro
Property-Tax Timing and Other Closing Costs Across the Kansas City Metro
The Kansas City metro crosses a state line and includes several counties, cities, taxing jurisdictions, and recording offices.
The state line matters, but the county, property, contract, and closing date matter just as much.
On the Kansas side, real estate taxes may generally be paid in full in December or divided between payments due in December and May.
The Missouri side commonly uses an annual property-tax bill due near the end of December. When a Missouri property changes owners during the year, the closing statement may credit the buyer for the seller’s portion of a tax bill the buyer will later be responsible for paying.
That credit is not simply extra money received at closing. It accounts for the seller’s share of a bill that may not become payable until after the buyer owns the property.
Some Kansas City, Missouri properties can also have city special assessments connected with improvements such as sewer or water-main work. An unpaid assessment may need to be addressed as part of the title and closing process.
These are examples of why a broad Kansas City closing-cost percentage is not enough. Neither Kansas nor Missouri should automatically be treated as the more expensive side.
The useful comparison comes from the actual county, property record, loan, contract, tax status, assessments, and closing estimate.
Buyer Closing Documents
Where Buyers Find Their Estimated Closing Costs
Loan Estimate
For most home-purchase mortgages, the lender provides a Loan Estimate early in the mortgage process.
It shows the proposed loan terms, estimated closing costs, and estimated cash to close. The lender generally provides it within three business days after receiving the application information needed to prepare the estimate.
Closing Disclosure
Later, the buyer receives a Closing Disclosure showing the final loan terms, closing costs, and cash to close.
For mortgages covered by these requirements, the buyer must receive it at least three business days before the scheduled closing.
The buyer should compare the Closing Disclosure with the most recent Loan Estimate. A change does not always mean something is wrong, but the buyer should understand why it changed.
Urban Cool Homes can help you review the documents and identify the questions that need answers. The lender and closing company provide the final figures, but you do not have to sort through unfamiliar charges on your own.
Seller Closing Estimates
Where Sellers Find Their Estimated Closing Costs
A seller can request an estimate showing the expected deductions and proceeds from the sale.
Depending on who prepares it and when it is issued, the document may be called a:
- Seller net sheet
- Seller proceeds estimate
- Preliminary closing statement
- Estimated settlement statement
The estimate should account for the expected sale price, mortgage payoff, closing expenses, compensation agreements, taxes, assessments, association charges, concessions, and other expected deductions.
It should be updated when the contract changes, a repair credit is negotiated, the closing date moves, or another property expense is identified.
The final amount may also change as title work, payoff figures, tax adjustments, and association information are completed.
Questions About Your Estimate?
Ask Urban Cool Homes About Closing Costs
Closing estimates can be difficult to understand because fees, prepaid expenses, escrow deposits, credits, payoffs, and adjustments may all appear in the same calculation.
Have a question about a particular charge or why an estimate changed? Ask Urban Cool Homes. We can explain what the figure means, how it affects the amount you need to bring or expect to receive, and whether another party needs to confirm or correct it.