Understanding Closing Costs
Closing costs can take you by surprise—whether you are buying or selling for the first time or it’s been many years since your last real estate transaction.
The term “closing costs” refers to all the fees that buyers and sellers pay for transferring a property's ownership. These various costs can add up quickly, and knowing what to expect at the closing table is important.
This month, I’m breaking down the most common closing costs I see for Massachusetts buyers and sellers. Remember that many factors will influence your closing costs, like your lender's requirements and the type of property you're purchasing. Some items below may not apply to you, while other fees not mentioned could be involved.
Bank Fees: Your lender will charge you a loan origination fee for processing your mortgage application. The fees cover expenses like obtaining your credit report, processing your loan, and reviewing your creditworthiness. Bank fees vary from bank to bank and are often negotiable, but expect to pay somewhere between 1–2% of the loan amount.
Appraisal Fee: Your lender will require at least one professional appraisal of the property’s value, which costs anywhere from $300–$800 in most cases. Some banks require two appraisals.
Attorney Fees: If a real estate attorney draws up your Purchase & Sale Agreement, oversees closing with your interests in mind, or handles any other matters related to your home purchase, you’ll have attorney fees to consider. Attorney fees vary based on the specifics of your transaction but you're likely to pay between $750-$1,000.00
Other Legal Fees: Additional fees to prepare for include the cost of a plot plan, title search fee, title insurance for the lender and yourself, and a recording fee (which covers the cost of recording the deed and mortgage with the county).
Broker Fees: As the seller, you'll be responsible for paying both your agent's and buyer's agent's commissions. A typical rate is 5% of the total purchase price—2.5% of which is paid to the buyer’s agent and 2.5% to your agent.
Transfer Tax: Massachusetts levies an excise tax based on the sale price of your property. The rate for this tax is currently set at $4.56 per $20,000 and is deductible on your state tax return.
Attorney Fees: If you hire an attorney to help with the closing process, you’ll have lawyer fees to pay. These can range depending on the complexity of your home sale. These can range depending on the complexity of your home sale but are likely to be between $1,800-$2,400.00.
Outstanding Property Taxes and Utility Bills: If there are any outstanding bills up to the date of closing, you are responsible for paying these.
Extras: There are a lot of relatively minor fees that can add up, such as wire transfer fees or mortgage discharge fees. Prepare to have extra cash on hand for these.
As a seller, it's also important to be aware that you may be subject to capital gains tax on the profit you make from your property's sale. As long as you have lived in the property for at least two of the five years preceding the sale, you can exclude up to $250,000 of capital gains as an individual and up to $500,000 if you are married and filing jointly. Be sure to check with your tax professional or financial advisor to understand the specifics of your situation.
Do you have more questions about buying or selling your home? Whether you're ready to make a move this spring or planning for the future, I'd love to help.
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