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  • Writer's pictureToya Ann

Why Are My Closing Cost So High?

What are closing cost and why are they so high? At the closing table, most of the time you are paying closing and prepaids. In this blog, I give a brief explanation of the difference between closing cost and prepaids.

Closing costs and prepaids are both expenses associated with the purchase of a property, typically during the closing process. However, there are some key differences between the two:

Closing Costs: Closing costs refer to the fees and expenses that are paid at the closing of a real estate transaction. These costs are usually incurred by both the buyer and the seller and can vary depending on various factors, including the location and the specific terms of the transaction. Closing costs typically include:

  1. Loan-Related Fees: These fees are associated with obtaining a mortgage loan and may include origination fees, points, and appraisal fees.

  2. Title and Escrow Fees: These fees cover the cost of conducting a title search, issuing title insurance, and handling the escrow process.

  3. Attorney or Settlement Agent Fees: These fees are paid to the attorney or settlement agent who oversees the closing process and ensures that all legal requirements are met.

  4. Recording Fees: These fees are charged by the government for recording the deed and other documents related to the transaction in the public records.

  5. Inspection Fees: These fees cover the cost of home inspections, such as a general home inspection, termite inspection, or radon inspection.

  6. Miscellaneous Fees: There may be additional fees for document preparation, courier services, and other administrative costs associated with the closing.

Prepaids: Prepaids, on the other hand, are expenses that are paid in advance at the time of closing to cover certain ongoing costs associated with the property. These costs are typically prorated based on the closing date and may include:

  1. Property Taxes: Prepaying property taxes ensures that the new owner is responsible for the property tax liability from the closing date onward.

  2. Homeowners Insurance: Lenders often require borrowers to have homeowners insurance, and prepaying the premiums ensures coverage for the property.

  3. Mortgage Interest: If the mortgage payment due date is after the closing date, the buyer may need to prepay the interest for the remaining days in the month.

  4. Homeowners Association (HOA) Dues: If the property is part of a homeowners association, the buyer may need to prepay a portion of the HOA dues for the current billing period.

It's important to note that while closing costs are one-time fees paid at the closing, prepaids are ongoing expenses that are paid in advance to ensure the property's financial obligations are met. Both closing costs and prepaids can vary depending on the location, the type of property, and the specific terms of the transaction.

- Toya Ann

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