What Does a Closing Cost? What are Closing Costs? What?

Boston Brownstone & Dogwood - Photo by Annie Bergen
Boston Brownstone & Dogwood – Photo by Annie Bergen

You did it!  You finally bought your very own home.  Well, almost.  The closing is just a week away and all is going well.  All you need to do is make sure you have everything everyone is asking for on closing day.  But you’re a little confused because your attorney and the agents and your lender keep tossing terms about as casually as breathing, all the while expecting you to understand exactly what is going on and how it affects you.  You’re going to sign things that say this is so after all!

So what, exactly, are “closing costs” anyway?  Is that the price of a closing?  Well, kind of.  But it’s not like you say, “Hey that looks like a nice closing, I’ll take one of those please.”  Closing costs for each buyer and each transaction will always be unique based on their particular financial circumstances and the agreed-upon terms of the deal as negotiated and declared in the signed Purchase & Sale Agreement.  Sound a little overwhelming?  Not to worry, that’s what this blog is here for.

Follow me.

First, it is indeed true and accurate to say that “closing costs” are particular amounts of money that you (the buyer) will be expected to pay on “closing day” -the day the place you are buying officially transfers ownership (by way of recording in the registry of deeds) to you from the seller.

These mysterious “costs” often include one or more of the following: attorney’s fees, title insurance, recording fees, loan origination fees and/or discount points, prepayments of real estate taxes and insurance premiums, appraisal fee, credit report cost, and underwriting fees.  All in all, closing costs typically end up ranging from about 2% to 6% of the loan amount depending on the area.

There is no set list of items nor are there fixed dollar amounts, but here is one typical collection of closing costs to use as a general guideline:

  • Attorney Fees (for closing, title exam, and document preparation): $500-$1000 +/-
  • Premium for title insurance, if needed
  • Discount Points (1 point=1% of loan, etc.)
  • Appraisal fee, credit report fee
  • Property Tax Reserves
  • Prepaid interest
  • Recording Fee
  • Tax Stamps ($4.59 per $1000)

Sometimes the seller will contribute to these costs as part of the deal.  Always check with your lender for final closing cost numbers and details -they will give you an estimate early on (called a Good Faith Estimate and now required by law) and then the actual numbers usually a day or two before your closing.

So there you have it.  Closing costs are not quite as scary as one might think!  The important thing to remember is to ask questions early and often.  Between your attorney, your lender, and your real estate agent, you should have a team of experienced professionals who can make sure you’re prepared and knowledgeable at every turn.  Don’t hesitate to ask about each and every term mentioned in this blog and anything else you come across on the way to closing.  There is no question too small!  The closing officer will also walk you through the Settlement Statement on closing day –this form itemizes all the costs being paid by the sellers and the buyers, so take your time reading through it and ask questions about anything that you don’t recognize or understand.  Finally, the closing officer will ask for a check for your down payment and closing costs.  This is it!

You are now not only a homeowner, but one who understands closing cost lingo like it’s nobody’s business.

Once again, thank you for tuning into the Marston Beacon Hill real estate blog.  Do not hesitate to get in touch with any questions!

Until next time,

Annie Bergen and the Marston Beacon Hill Team

If I Knew More About My Condo Fee, What a Wonderful World it Would Be.

~~~ The Charles River and the Brownstones of Boston ~~~ Photo by Annie Liza Bergen

~~~ The Charles River and the Brownstones of Boston ~~~ Photo by Annie Liza Bergen

Don’t know much about history.  Don’t know much biology.  But I do know that I love condominiums.  And if I knew more about their fee, what a wonderful world it would be.  What a wonderful world it would be.  All together now!

Do you like the idea of sharing the joys and responsibilities of home-ownership with others instead of going it alone?  And is it agreeable to think of sharing costs and decision-making regarding the upkeep of your building’s common areas?  Then condominium living might be for you!

But, you might be thinking, what exactly is a condominium?  What are condo fees?  And how does it all work?  The terms are so familiar, yet also mysterious at the same time.

Well these are all great questions and you’re not alone in asking them.  So we at Marston Beacon Hill have gone ahead and compiled some of the most frequently asked questions about condominiums, condo fees (aka association fees), and the major points you need to know in order to keep it all straight.  So come along and explore these questions with us –here we go!

1. I always hear about the “budget,” but am not quite sure what that means . . .

Condominium associations elect a board of trustees to oversee the planning and execution of running the condominium.  In order to make and implement decisions efficiently and effectively, the trustees need to create a budget for the condominium to run on just like any family or individual needs to do.  In order to do this the trustees first look at all necessary expenses (discussed below) and then add in any special projects (also discussed below).  Then they use that number as the total budget for the year.  Each unit owner’s condo fee is then based on their respective percentage of the total budget needed for the year.  For example, if it takes $50,000 per year to operate a building and you own 5% then you would owe a total of $2500 for the year, making your monthly association fee $208.33.  So, the next time you think you might like your association to oh, let’s say, “just go ahead and build a gym,” don’t forget that this will also mean a corresponding increase to your monthly fee!  So which do you think will make you sweat more?  The gym or the fee?

2. Let’s Talk about “Condo Fee,” Let’s Talk about You and We

The term “condo fee” stands for condominium fee and it refers to a monthly dollar amount that a condominium unit owner must pay to their condominium association.  It is also, by the way, actually an “association fee,” rather than a “condominium fee” even though it is commonly referred to as the latter — A condominium is a type of ownership entity. An association is the organization of condominiums. The fee that is paid is an association fee rather than a condominium fee –are you loving this yet?  The fees are split between all owners in the condominium and cover costs that vary from building to building, generally going towards common area maintenance, utilities, and other costs of running the condominium.  Some associations include very little in the fee –perhaps just maintenance, heat, and hot water.  Other larger associations can include salaries of maintenance or concierge staff and the upkeep of common amenities like roof decks, pools, and gyms.  There is also generally a portion that goes to building up a healthy reserve in case the association has to make an emergency or planned repair.

3. Why do condo fees change (often go up) and can I do anything about this?

One thing that generally confuses people is why their condo fees often change –and unfortunately usually go up!  Well, this can be for many reasons.  Sometimes the association chooses to increase the monthly fee to raise money for increased routine costs, or to make a repair to the building that was unanticipated like getting a new roof.  These expenses would often be too much for people to handle in one go, so it helps to roll them into the condo fee and spread them out over time.  Since the raw underlying costs involved change, the fees that are passed onto owners have to change as well. For example, fuel costs have been going up as much as 25% this year, so condo fees are going up to reflect this added cost.  In order to be fiscally responsible, associations plan for upcoming capital needs, and a good way to do this is to put aside money in a reserve account. Part of the condominium fees often include a portion for funding this contingency account. In the case of an unplanned event, or a cosmetic or non-capital expense, calling for a supplementary assessment may be done.

And there you have it!

The secrets of condominium living 101 have been unlocked and are yours forever.

We hope this information has been helpful.  If you find yourself still brimming with unanswered questions, please don’t hesitate to get in touch anytime and we would be glad to help.

Until next time,

Annie Liza Bergen and the Marston Beacon Hill Team