Settlement (Closing) Costs

Who pays for closing costs may vary depending on the location and the market.  Requirements differ in each state and sometimes in each city.

In a buyer's market, sellers may opt to cover the costs just to have a better chance of getting closer to the price they want.

Your real estate agent can tell you which fees the buyer in your area normally pays for. He/she can also calculate the estimated costs you will be responsible for, based on the sales price, so there will be no surprises at the closing table.

Sellers are typically expected to cover closing costs like:

• Loan payoff fees
• Real estate commission (in some cases, a portion of this may be paid by the buyer)
• Termite repairs
• Transfer taxes
• Title insurance and settlement fees
• Attorney's fees where applicable

Buyers are typically expected to pay the following closing costs:

• Fees for obtaining a mortgage
• Inspection costs
• Homeowner's insurance (must be prepaid for one year at closing)
• Property taxes
• Transfer taxes (although the seller may pay these or they may be shared 50-50 between buyer and seller)
• Title insurance and settlement fees
• Attorney's fees where applicable

Doing some research and asking around will familiarize yourself with the area where you are buying or selling so that you can understand what exactly you will be expected to pay.

The federal Taxpayer Relief Act of 1997 says when you sell your home you can keep, tax free, capital gains of up to $500,000 if you are married filing jointly or $250,000 for single taxpayers, or married taxpayers who file separately. To qualify for the exclusion, you must have used the home as your principle residence for at least two of the prior five years. It is not a one time tax exclusion. You can use the exclusion as often as you meet the qualifications.

The federal Internal Revenue Service Restructuring and Reform Act of 1998 further clarified the law and says you can prorate the $500,000/$250,000 exclusion (not your specific gain) if unforeseen events, such as a job change, illness, or some other hardship forced you to sell before you meet the two-year residency requirement.

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