Closing costs are the fees associated with buying and selling a home. They may be incurred by either the buyer or seller. Here’s what you should know about the various fees and whether the buyer or seller pays. 

Closing Costs For Homebuyers

Aside from the down payment and earnest money the buyer is responsible for most of the closing costs. Some of the fees can be negotiated and the amounts can vary based on the state, lender, and mortgage type.

Buyers typically pay for property-related fees including the appraisal fee, home inspection fees and loan-related fees. These include the application fee, attorney’s fees, and mortgage broker fee.

Other closing costs for buyers are:

• Credit report fee. 
• Origination fee, also known as the underwriting fee or processing fee. This pays for administrative services when making the loan, including document preparation and notary fees.
• Discount points. Each point is 1% of the loan amount. Points can be paid at closing to lower the interest rate on the loan.  
• Flood determination. If the property is located within a flood zone, flood insurance will need to be purchased.
• Document preparation fee.
• Mortgage insurance fees. If the buyer is paying a deposit of less than 20% they are often required to get mortgage insurance.
• Property taxes. Usually between 2 and 6 months of county taxes.
• Annual HOA fee and HOA transfer fee.
• Pest inspection.
• Escrow deposit. Depending on the lender you may be required to pay 2 months of property tax and mortgage insurance. 
• Homeowner’s insurance. Lenders often require the premium for 1 year to be paid.
• Transfer tax.
• Title fees, including search fees, lender’s title insurance, and owner’s title insurance. 
• FHA, VA and USDA fee. If the loan is through the Federal Housing Administration the buyer is required to pay FHA insurance premiums and an upfront payment of 1.75%. If the loan is through the Department of Veterans Affairs or the USDA the buyer pays a guarantee fee.

Closing Costs for Home Sellers

The fees that the seller is responsible for can vary greatly from sale to sale. Buyers will often negotiate to have the seller pay some or even all of the closing costs. One fee that sellers always pay is the real estate commission which is usually 5% to 6% of the selling price. 

Negotiable closing costs for home sellers

Almost all fees are negotiable and may be paid by the buyer or the seller. What the seller pays is largely dependent on how motivated they are to sell.

For example, if the seller has had their property listed for a long time and hasn’t had many offers they may choose to pay most or all of the closing costs. On the reverse, if the seller has just listed a property in a desirable neighborhood and has already had several offers they are less likely to agree to pay any of the closing costs.

Closing costs with a cash sale

When paying cash for a property, some of the fees are eliminated. When paying cash there’s no need to pay lender associated fees such as the credit report fee and the origination fee. 

Now that you know which closing costs the buyer and seller are responsible for, you should be ready to go to your closing.  If you have any questions about closing costs, title insurance, or escrow services, or click here to email us and we’ll be happy to assist.

Are you looking to buy a gorgeous waterfront property or invest in and flip something along the Chesapeake Bay? If so, you likely have questions about critical areas in Maryland, specifically what you can and cannot do when it comes to landscaping and natural vegetation.

Let’s face it, part of the experience of living on the water is the view, and this guide to real estate and Maryland critical areas will help answer your questions.

Before we jump in, it’s important to understand what constitutes a critical area in Maryland. According to the Maryland Department of Natural Resources, a critical area is considered to be land “within 1,000 feet of Maryland’s tidal waters and tidal wetlands.” This includes property that exists along some of Maryland’s most famous waterways, like the Chesapeake Bay.

Note: If you have your eye on a Maryland property, then you’ll need to determine if it’s protected under the Critical Area Program. To do so, you can contact the Planning and Zoning office for the jurisdiction in which you plan to build. Physical maps of Critical Area Program land should be available in the office, though many jurisdictions now offer electronic maps online. For instance, if you’re considering investing in property in Annapolis, you can review the critical land map for Annapolis on the government’s website.

However, we also recommend that you contact the title company to find the most recent boundaries and line surveys. They can help you locate information specifically relevant to building within the Critical Areas of Maryland.

Often times, you can still build and invest in property within a Critical Area, but you will need to adhere to some rules and regulations, many of which have to do with buffers.

Buffers, which are often composed of shrubs, plants, and trees, help to minimize the impact that man-made structures, like buildings and paved areas, have on the Critical Area. Buffers are adjacent to the critical area land and typically at least 100 feet wide, though some can be 300-ft or more. In this case, it’s also helpful to contact a title company to determine the width requirements of a Critical Area buffer as it relates to your property.

When you build or invest in a property in a Critical Area of Maryland, it’s important to make sure you meet all the local and state requirements. Here are some common questions and concerns that home buyers and real estate investors frequently have when it comes to Critical Area requirements as they relate to building and landscaping.

Can I remove a tree if it blocks my view of the water?

If the tree is not located in a buffer zone and you plan to plant new trees, you can typically remove a tree after requesting approval from the local planning office. If the tree is in the buffer zone and otherwise healthy, it cannot be removed. [Read more…]

If you’re considering purchasing real estate, be it a home, land, or commercial property, your first inclination may be to seek financing through a lender. However, in some cases, a land contract may also be an option.

A land contract is a form of financing that allows buyers to make regular payments directly to the seller or real estate owner in exchange for ownership.  This is different than a traditional mortgage where a house or condo buyer finances the property through a lender and makes payments to the lender for the duration of the mortgage.

Though a land contract is not considered a traditional mortgage, the two share some similarities. For instance, both are legally binding documents that outline the terms of a real estate transaction. Both also typically require the buyer to make a set amount of payments over a specified period of time. Once the payment agreement is met in full, the legal title will transfer to the buyer who will then own the property outright.

Why would someone use a land contract?

This type of seller financing can make it easier for buyers and sellers by negating the need for mortgage approval. For buyers, this makes purchasing property easier even if they aren’t eligible for a traditional mortgage. For sellers, a land contract can give them access to more buyers, create a steady income, and potentially sell their property for a higher purchase price.  But there are risks for both parties.  Below you’ll find common questions and answers about land contracts to help you decide if one is the right option for you.  

What a Land Contract Is & How it Works

A land contract is an official agreement between the buyer, or vendee, and the seller, or vendor. When entering into a land contract, the buyer will make regular payments, typically monthly, to the seller.

Payments include the principal balance as well as any interest. During the payment period, the seller will maintain ownership of the legal title. The buyer, however, will maintain what’s known as equitable title, which prevents the property owner from selling the property, using it as a lien, or engaging in other activities that would infringe upon buyer’s rights to the property.  It is important to note that the seller’s inability to sell or otherwise act against the interest of the contract is achieved by recording the land contract in County Land Records.

Once the final payments are made, the seller transfers the title to the buyer, and the buyer owns the property outright. At that point, the appropriate paperwork will be filed with the county and any other required government parties. 

The Terms of a Land Contract Include:

Though land contracts vary from state to state and often seller to seller, they typically each include the following:

Repayment term, or how long you’ll have to pay the home off in full. While many mortgages extend to 30 years, land contracts are typically shorter. This is particularly important to note since some land contracts will allow for monthly payment for a specific period of time at the end of which the buyer will need to make a balloon payment for the remaining balance.

Down payment, or a lump sum payment made at the start of the land contract. Though these vary, they are often lower than the traditional 20% required of a traditional mortgage.

Interest rate, or the “cost” of borrowing. Land contract interest rates are typically set by the seller and therefore vary.

Are Land Contracts The Same As Rent to Own?

No, land contracts are different from rent-to-own agreements. Both are considered a form of seller financing, but there are significant differences between the two. For instance, under a rent-to-own agreement, the seller is still responsible for things like property maintenance, insurance, and taxes. A land contract, on the other hand, is very similar to a mortgage in that those responsibilities and costs shift to the buyer.

Further, in a land contract, the buyer also gains many of the typical rights extended to a homeowner, like the ability to make home improvements or other alterations to the property. Under a rent-to-own agreement, those rights can be limited.

Finally, and perhaps most importantly, is expected ownership. In a rent-to-own agreement, the intended buyer often chooses to purchase the home for a predetermined price, but they are not necessarily obligated to do so. In a land contract, however, the agreement is a binding one in which the buyer agrees to purchase the home. Failure to make payments and carry out the agreement would result in a default.

Is it smart to use one?

That depends on your situation.

For home buyers, a land contract can be a good idea if:

• You can’t qualify for a traditional mortgage
• Have a poor credit history
• Can’t meet deposit requirements of a traditional mortgage

For home sellers, a land contract can be a good idea if:

• You’re looking for a built-in income with interest
• Your property has been on the market for a significant period of time
• There are limited buyers and you want to attract more
• You either own your home or are confident your current mortgage agreement will allow for a land contract

What Happens if a Buyer Doesn’t Pay Monthly Payments?

If a buyer doesn’t make the required monthly payments or defaults on the contract, the seller can take legal action against the buyer.

Up until the end of the contract, the buyer maintains an “equitable title,” which refers to, among other things, their right to work towards complete ownership of the property in question. This differs from the legal title, which is held by the seller until the buyer makes payment in full.

When the buyer fails to make payments, the seller can file a land contract forfeiture, which is a court action that ends the buyer’s equitable title. Once filed, the land contract is no longer valid and the buyer gives up all money previously paid as well as the future rights to the property. The seller maintains all monies paid as well as full ownership of the property.

Do Land Contracts Need to be Recorded With the State?

Real estate law varies from state to state, and so whether you need to record a land contract with the state depends on the state in which you live. For instance, sellers in Ohio are required to record the land contract within twenty days of signing. In Illinois, however, land contracts for residential property, also known as installment sales, must be recorded within ten business days of sale.

If you’re considering or in the process of entering into a land contract, consult a certified real estate lawyer in your state to find out exactly when and if you must record the contract with the state.

Who Pays Property Taxes on a Land Contract? 

Typically, the buyer is responsible for paying property taxes on a land contract. However, in some cases, the buyer will only take on the financial responsibility and the owner will continue to make the actual payments, passing the cost along to the buyer. 

Who Chooses the Interest Rates on a Land Contract?

The seller determines the interest rate on a land contract.

A Seller’s Net Sheet is a document that calculates how much money one can expect to have when the sale of their home is final.

Seller Net Sheets factor in all of the fees and expenses that occur in the process of the sale, leaving the seller with an accurate estimate of what they can expect to take home when all is said and done.

For example, if you sold your home at the asking price of $200,000, the actual amount of money you take home may only be $165,000. Seller’s Net Sheets come into play and tell you where that $35,000 went, allowing the seller to have a better idea in the exact amount of money they can expect to walk away with when the sale of their home is final.

It is important to obtain or create a Seller’s Net Sheet for a variety of reasons. First and most importantly, it provides a road map to where the percentage of closing costs and commissions are allocated.  You’ll also learn why you as the seller will owe what you do, and what you can expect to keep after all is said and done.  

Now that you know why seller’s net sheets are important, lets jump into some of the frequently asked questions about them, and learn how to read one.

How to Read a Seller’s Net Sheet

Reading a seller’s net sheet is easy.  Simply look at the sale price, subtract the fees and deductions, and you now have your estimated profit from selling you home.  Although the components can vary from state to state, the sheets are overall very similar. The purchase price is the number before any deductions.  Then we go into what will be deducted from this price.  

First you’ll find any and all of the commissions (as an estimate) that you should be expecting to pay.  These are generally a percentage of the total purchase price. Next are the title insurance costs, followed by escrow fees and property taxes.  By taking the total of all of these expenses and subtracting them from the total purchase price, this is how you get to the final take-home cash total.  

Does Your Real Estate Agent Prepare The Sheet?

Seller’s Net Sheets can be prepared by both or either the seller or the real estate agent. There are benefits to preparing it on your own, or letting your professional agent handle it. 

If you as the seller choose to prepare your net sheet on your own, various calculators are available online which will make this easy.  Simply type “net seller sheet calculator” into Google, Bing, Duck Duck Go, or your favorite search engine, and you’ll find a calculator that works for your needs.  By doing this, you can get an immediate idea as to what costs you can expect to accrue while closing on the sale of your home. However, if you are using a real estate agent, they can and most likely will prepare a net sheet for you. 

This is what we recommend as real estate agents are more familiar with them, and they can predict hidden fees and get you more accurate numbers.  Accuracy is the main benefit to having your real estate agent prepare your seller’s net sheet for you.

How Do I Calculate the After-sale Profit?

The best practice to calculate the after-sale profit is first to take the total home sale price.

You then deduct any real estate agent fees, which land around 5-6% of the total sale price. Other fees may include but are not limited to:

• Any staging and prep work to the property
• Seller concessions
• Overlap costs like paying two mortgage payments
• Tile escrow and transfer tax

These percentages vary but are usually around 1-2% in each circumstance. This overall amount, in comparison to your initial investment in the property, will provide your total after-sale profit. It’s also fair to mention that other fees can come into play, depending on where the house being sold is located.  For example, in the state of Maryland, the seller is required to pay 0.5% in transfer taxes, unless they are a first time Maryland home buyer. 

ALTA settlement statements may appear confusing at first, but don’t worry, they are much simpler than they appear.  Alta settlement statements are specifically designed to organize the property selling process and the post below walks you through each of the four ALTA statements and how to use them.

You’ll learn how these statements provide a thorough breakdown of what charges apply and to which party.  This helps both the buyer and the seller better understand how the final costs have been reached and why each of you owes the specific fees. 

What is an ALTA Statement?

The ALTA settlement statement is an itemized list of all of the fees or charges that the buyer and seller will pay during the settlement portion of a real estate transaction. Everything from the sale price, loan amounts, school taxes and other pertinent information is contained in this document.

The statements are provided to brokers and agents on both the buying and selling ends of the transaction.

There are Four Types of ALTA Statements.

Because ALTA settlement statements are designed for agents and brokers on both ends of the process, four types are provided.  But please note that it is possible to have a combined ALTA Buyer’s or Seller’s statement.

• ALTA Settlement Statement Combined – The Combined settlement is a document that bundles together all transactions as they apply to both the buyer and the seller.
• ALTA Settlement Statement Cash – This is the version used for liquid cash transactions for property sales. 
• Settlement Statements – This is the version supplied solely to the buyer and contains only information pertinent to the buyers side of the transaction.   
• Seller’s Closing Statement – Throughout the transaction, credits given by the seller and other fees will impact the amount of cash the seller receives. This provides a breakdown off all transactions and how they play into what the seller will make.

The Difference Between Seller & Closing Disclosures, HUD-1 & Alta Statements?

The difference between a seller disclosure and closing disclosure is simple – the seller will receive a seller’s disclosure, which provides a breakdown of costs and fees that factor into the cash they will receive at the transaction’s end.

Due to TRID regulations, agents will have nothing to do with the closing disclosure. The closing disclosure is provided to the buyer and pertains a list of fees and costs and how they work into the buyer’s total expense. It is important to note that only the lender can provide the Closing Disclosure to the buyer 3 days prior to closing? And only the buyer should be able to see it unless they allow the release of it by signing a release disclosure.  You should also know that the lender is obligated under the TRID regulations, and the lender can be penalized for failing to disclose 3 days after they’re loan application is approved and again 3 days prior to closing.

A Hud-1 used to be the primary statement associated with real estate and is used to document all cash transactions and how they affect both parties. It is now outdated.  The Closing Disclosure was introduced in 2015 as a document that instead contains this information strictly for the buyer. ALTA statements were put into use to provide thorough breakdowns for agents and brokers to receive at the end of the transaction. 

Are ALTA Settlement Statements the Same as Net Sheets?

No, an ALTA settlement statement is not the same as the net sale sheet. A net sheet is a document that can be provided throughout the sale process to give the seller an estimate on what they can expect to make. The net sale sheet is not final, and multiple sheets may be provided as offers are made and transactions process. An ALTA settlement statement is provided during the closing of a transaction and contains solid numbers rather than estimates.

Where Can I Download a Sample ALTA Settlement Statement?

You can download a sample ALTA statement by clicking the text link below.

Click here to download a sample alta statement

ALTA has developed standardized ALTA settlement statements for title insurance and settlement companies. These sheets help itemize all the fees and charges that both the homebuyer and seller must pay during the settlement process of a housing transaction.

Having a standard form for nearly all title insurance policy transactions maintains that all exchanges of land are done smoothly and efficiently.

When you buy a home, you’ll be faced with the choice to buy title insurance. If you have a mortgage, your lender will probably require you to purchase a Loan Policy but you’ll usually have the option to buy an Owner’s title policy as well. But that leads to some confusing questions which is why we created this guide.

What is the Difference Between Lender’s and Owner’s Title Insurance?

Lender’s Title Insurance is a policy that protects the lender from any claims on the title for the property you are purchasing.  Because the Lender owns the property until you’ve paid them back, it’s extra security for them.

Does Lender’s Insurance Protect Me?

No, it only protects the Lender as the financer of the property.  You will be required to buy the policy by most lenders as a requirement to borrow their money.

Owner’s Title Insurance is a policy that protects you in case someone tries to make a claim on the property you purchased.  The claim on your deed or “the document showing the property was transferred to you” [Read more…]