Closing costs in Washington State are the fees and taxes associated with real estate transactions. If youve purchased a home in the past, you may can recall the fees that get tacked on during closing. Whether you are a first-time home buyer or move-up buyer, this article will explain closing costs in detail.
Many home buyers are surprised by the long laundry list of closing costs. Real estate deals have a lot of moving pieces like financing, ensuring the title is clear, establishing the home is free of major defects, etc. During the home buying process, several parties (like title companies, lenders, appraisers, and real estate agents) come together to make everything happen in an orderly and timely fashion. Accordingly, each vendor is compensated for their work.
There are two stages of the escrow period: opening and closing. Vendors are paid at the stage in which their services are rendered. Some fees are paid out-of-pocket while other fees are rolled into the loan amount. Out-of-pocket fees are paid during the opening escrow period.
Buyers and sellers are separately responsible for certain closing costs like taxes and insurance. In Washington, buyers and sellers split the escrow fees in half.
Opening Escrow
When a seller accepts an offer on their home for sale, the buyer places a good faith deposit (a.k.a. earnest money) on the home, usually to the tune of 1% of the agreed-upon price. When a buyer makes a deposit, it shows the buyer he or she is serious and making a commitment to the deal. Earnest money is refundable most of the time. In a small number of cases, the buyer will fail to perform the contractual obligations outlined in the offer letter.
Inspections uncover structural problems with the home like a roof that needs repair or cracks in the foundation. They also check the major systems and components of the home like the air conditioner, electrical wires, or pipes.
Appraisals determine the fair market value of the home on the date of the appraisal. Lenders require appraisals to make sure the value of the home is sufficient to back the loan (as collateral).
Inspections are not required by law but are highly recommended. What’s more, some mortgage programs like FHA and VA loans require them.
Closing Escrow
After the appraisal and inspection, if there are no more contingencies to clear, the deal moves into the closing of escrow stage or simply “closing.” Closing costs are divided between the buyer and seller. What follows is an outline of who pays what.
Closing Costs for BUYERS in Washington State
Buyers are responsible for two kinds of fees, one-time and recurring. One-time fees are just like they sound; fees paid only once. Recurring fees include items like insurance and property taxes that are paid in installments during the course of home ownership. Having certain ongoing fees pre-paid at closing helps new home owners transition to a new payment routine, essentially giving them some breathing space to adjust.
One-Time Fees (Lender Fees)
- Discount Points optional fee that can “buy down” the mortgage interest rate
- Flood Certification assesses the future flood risk of the property
- Mortgage Insurance covers the lenders risk of making a loan where the down payment was less than 20%
- Mortgage Origination an upfront fee the lender charges to make the loan
- Processing the lenders fee to manage and complete the loan documents
- Underwriting the lenders administrative cost to evaluate the borrowers capacity to repay the loan
Recurring (Impounds)
Lenders may require an upfront deposit to an impound account that will cover the first three months of homeowners insurance and six months of property taxes. These upfront deposits are called “impounds” and once the money is set aside, the first few installments are paid automatically from the account on behalf of the buyer.
- Hazard Insurance the annual homeowner insurance premium
- HOA Dues condo association fees (usually the first two months is all that is required)
- Prepaid Mortgage Interest the interest portion of the mortgage payment for the current month in which the deal closes
- Property Taxes up to six months of taxes
Closing Costs for SELLERS in Washington State
Home sellers in Washington can expect closings costs that average from 5% to 9% of the sales price installment loans Indiana. The listing agent’s commission will make up the bulk of the fees.