Allocation of costs associated with ownership of the home: These costs include the following:
Property Taxes: Property Taxes in California are placed as a lien on a property July 1st of each year, and are for taxes for the period 7/1 through 6/30. These taxes are due and payable by 12/15 and 4/15 of the taxable year. At closing, property taxes are either allocated to the buyer or seller depending on the date of closing and the time that the last property tax payment was made by the seller. For instance, if a property closed on October 1st, the seller, in all probability, has not yet made the first installment of taxes for the tax year that began July 1st. Therefore, the seller would owe taxes for the period from 7/1 through 9/30, or for 3 months, or 25% of the total property tax bill. This would appear as a credit owed to the buyer on the closing statement, reducing their closing costs, and as a debit on the sellers closing statement, decreasing the sellers net proceeds from the sale. If the property, however was sold on 5/31 and the seller had paid both installments of property taxes which were due on 12/15 and 4/15, then the buyer would owe the seller for one month of taxes which had been prepaid by the seller, for the period from 6/1 to 6/30. This would appear as a debit on the buyer's closing statement, increasing their closing costs, and as a credit on the seller's closing statement increasing their proceeds from the sale.
Mortgage Interest: Mortgage payments are set up to be due on the 1st of each month, and pay both a principal payment, as well as interest owed for the prior month. If a buyer's loan closes on 4/15, the lender will charge prepaid interest for the last 15 days of the month that the loan closes, which will appear on the buyer's closing statement. The first mortgage payment for the buyer won't be due for approx. 45 days until 6/1, since the interest for April has been prepaid at closing, and the interest for May isn't owed until the first of June, in arrears. The seller will also receive a charge for the interest owed on the seller's current loan from the date of their last loan payment until the closing date of sale, which will appear on the seller's closing statement. The amount of interest and principal owed by the seller is received by escrow through sending a demand notice to the lender requesting loan payoff information and a per-day interest calculation so that escrow may accurately prepare the closing statement based on the exact day of closing.
Homeowners Association Dues: If the seller has paid for Homeowners Association dues for the month that the transaction closes, there will be an allocation to the buyer for the prorated amount of dues for the month of closing, which will appear as a debit on the buyer's closing statement increasing their closing costs, and as a credit on the seller's closing statement increasing their sales proceeds.
Closing Costs paid by Buyer Only:
Lender Points and Fees: Any "points" or up-front fees (sometimes called "loan origination fees") charged by the lender will appear as a debit on the buyer's settlement statement increasing the buyer's closing costs. These include points ( a one point fee is equal to 1% of the loan amount, and increases the annual percentage rate of the loan), loan underwriting fees, appraisal review fees, document preparation fees, an administrative fee ( usually charged in lieu of an underwriting fee) lender wire transfer fees, appraisal fee (fee to the appraiser for preparation of the appraisal - this fee is often paid up-front by the buyer prior to the close of escrow, however ). credit report fee, and flood certification fee. Additional points ( or "discount fees") may also be charged by the lender to lower the annual interest rate charged on the loan.
Mortgage Broker fee : If the buyer used a mortgage broker to arrange the loan, the mortgage broker fee is paid at closing through a debit on the buyer's closing statement. The broker should disclose to the seller any and all fees which the lender is also paying to the broker.
Title Insurance for Lender: A separate ALTA title insurance policy is normally required by the lender insuring their loan amount, and is paid by the buyer at closing. The price of this title policy varies with the loan amount. See my web blog entry at How are Escrow Fees and Title Insurance Fees Calculated in Southern California?
Property Insurance: The first years fire and liability insurance premium is normally charged to the buyer through escrow as a requirement by the lender to insure that insurance is in place on the property.
Private Mortgage Insurance: For loans with little or no down-payment, some lenders require the buyer to obtain Private Mortgage Insurance, which requires a month premium. The first months premium is usually charged to the buyer through escrow.
Loan Tie-In fee: This fee is normally charged by the escrow company for dealing with the lender. This fee typically is $1.00 per $1,000 of the new loan amount, with a minimum charge of $150.00 and a maximum of $500.00.
Sub-escrow fee : This fee is normally charged by the title company for their costs in coordinating the close of escrow with the escrow company, and receiving the funds from the new lender, and paying off the existing lender, and forwarding the remaining funds to the escrow company for final disbursement. Sub-escrow Fees:are typically $95.00 - $125.00.
Escrow fees: Charged to the buyer for escrow services by the escrow company. The escrow company may also charge xerox charges and other out of pocket costs which they may incur, such as courier services, etc. See my web blog entry at How are Escrow Fees and Title Insurance Fees Calculated in Southern California?
Homeowners Association Transfer Fee: This is a fee sometimes charged by a Homeowners Association when a property is sold to a new owner.
Survey Fee : The lender may require that a survey be prepared to confirm the legal boundaries of the home to determine if their are any encroachments onto the property by neighbors fences etc. and to insure that the home does not encroach on other neighbors property.
Recording Fees: These are fees charged to record documents with the County Recorders Office, such as the new quit claim deed to the buyer from the seller, as well as the loan documents.
Notary Fee: Fees paid to a notary to notarize documents related t the buyer only, such as the loan documents.
For more information about Palos Verdes and South Bay Real Estate and buying and selling a home on the Palos Verdes Peninsula, visit my website at http://www.maureenmegowan.com . I try to make this the best real estate web blog in the South Bay Los Angeles and the Palos Verdes Peninsula. I would love to hear your comments or suggestions.