Buying and selling a house can be a stressful time, especially if you don’t know what some terms mean, like ‘closing costs’ and ‘escrow.’ If you’re in the process of buying or selling a home, it is important to know what these phrases mean to ease your stress. Keep reading to learn what two major terms, escrow and closing costs, are.
What is Escrow?
While the term ‘escrow’ can be confusing to sort out for many first time home buyers and sellers, the general idea is pretty simple once you break it down the basic concept.
When you have a home in escrow, essentially a buyer has made an offer on a house they love and the seller has accepted it. To ensure that both parties are protected during this transition period when the paperwork is being sorted out, the buyer provides a check to show they are sincere about purchasing the home. The check goes into a holding account managed by a third party and the seller puts the deed of the house into this account as well. After everything is processed and the homes closes, the seller receives the check and the deed of the house is transferred to the buyer. If the deal falls through, both parties walk away with what they put in.
What are Closing Costs?
This phrase is easier to understand, and it likely comes as no surprise that it involves the costs incurred at the end of the home buying process. First time buyers and sellers often don’t know what those exact costs are. Closing costs can include:
- Application Fee
- Home Appraisal
- Attorney Fee
- Closing Fee or Escrow Fee
- Courier Fee
- Credit Report
- Escrow Deposit for Property Taxes & Mortgage Insurance
- Home Inspection
- Home Owners Association Transfer Fees
- Homeowners’ Insurance
- Lender’s Policy Title Insurance
- Origination Fee
- Prepaid Interest
- Property Tax
- Recording Fees
- Title Company Title Search or Exam Fee
- Transfer Taxes
- Underwriting Fee
While this is a long list of fees, typically the total is around 5 percent of the purchase price of the home and many items are negotiable. It’s also important to note that typically the buyer is responsible for paying these items, however, the seller can agree to take the costs if they choose (this is often a point of negotiation during a sale).
Hopefully, I’ve cleared up some of the confusion around these two common phrases in the real estate industry. Are there any other terms in real estate you would like to know more about? Let me know in the comments!
Karin Zeigler brings a wealth of knowledge and expertise in buying and selling residential real estate in the South Puget Sound area including Thurston, Mason, Lewis and Pierce counties. Whether you’re looking for a first house, downsizing, or have special circumstances such as military loans, Karin can help you find your dream home. Contact her today, or call 360-870-6249, to start your home buying or selling process.