The Honest Broker: Understanding Closing Costs
There should be no surprises at the closing table when it comes to real estate “settlements.” There are costs associated with both the purchase and the selling of a property. Entries on the closing statement are identified as “credits” and “debits”. The easiest way to understand debits and credits is to think of them in relation to a checkbook. For instance, a debit occurs when a check is written and the amount of the check is subtracted. A credit occurs when there is a deposit made. To understand a closing statement, simply think of debits as money either party must pay, or won’t receive and credits as money a party will either receive or doesn’t have to pay on closing day.
Specifically, these are the items that are found on the closing statement:
1.) Total Purchase Price- under this heading is found the escrow deposit and any first or
second mortgages that may be owed on the property.
- 2.) Proration’s and Prepayments- under this heading any rent, interest on first/secondmortgages, prepayment on first/second mortgage, insurance, city and/or county taxes.
- 3.) Expenses- the following will be found; title abstract, attorney’s fee, documentarystamps ( State tax: deed and mortgage note, Intangible tax for the mortgage), recording fees for both the mortgage and deed, Title insurance, brokerage fees, and any other miscellaneous fees.
- 4.) The last category is a totaling of all the credits and debits to each party with a final calculation as to how much either party will be “giving” or “receiving”.
The closing statement by law is available to both parties 3 business days in advance to the day of closing to give time to understand terms and costs. This protects from any surprises at the closing table. It also gives time to consult with your realtor or attorney and ask all the questions that you might have about the terms of your mortgage as well as clarify costs to closing.
Diane Lott, Broker
Paradise Found Realty, Inc. of Palm City
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