One of the biggest shocks to first-time home-buyers, particularly millennials, is closing costs. So what are closing costs and how much do they run? Closing costs include charges from the lender, title company/attorney, insurance company, local government, and the HOA (if any). These charges include loan origination fees, document prep fees, title search fees, appraisals, prepaid interest and insurance, escrows for property taxes, and other charges required to transfer the property from one owner to another.
For a typical home in the Washington, DC, market, these costs generally run around 3.75% of purchase price. One of the biggest surprises to buyers and sellers are the taxes that the District charges. The District of Columbia charges a recordation tax and a transfer tax on every real estate purchase. For purchases under $400,000, these taxes are each 1.10% of the purchase price. For transactions $400,000 and over, these taxes are each 1.45% of the purchase price. Standard practice in our market is for the buyer to cover the recordation tax and for the seller to cover the transfer tax. There is a low-income tax abatement program available for qualifying buyers.
Sellers may agree to pay for some of the buyer's closing costs. Why would they do this? Because a particular buyer may qualify for a loan, but not have enough money saved up to cover both the down payment and the closing costs. By agreeing to cover some of the buyer’s closing costs, sellers can ensure they do not miss out on an otherwise qualified buyer. Lenders must approve all seller-paid closing costs, and each has limits for what is allowed depending on the type of loan. Make sure to check with your lender to see if seller-paid closing costs are allowed before including them in a contract with a seller.
If you have any questions about closing costs or the Washington DC real estate market in general, give your local real estate expert Thomas Burns a call at 202-838-SELL, email me at firstname.lastname@example.org, or visit my website at www.TomBurnsDC.com. I am a full service real estate agent, a member of the National Association of REALTORS®, and a passionate professional dedicated to making your purchase or sale experience the best yet.