What are Closing Costs?
Closing costs are the fees and charges that are paid by the buyer and the seller upon the settlement of a real estate transaction. The closing, also called settlement, is the last step in the home selling process when both parties sign the final ownership and insurance paperwork and, in effect, the buyer becomes the legal owner of the property. Theoretically, most of the closing costs are usually the responsibility of the homebuyer. However, in actual practice, who pays what depends on the agreement by both parties and there are instances when the seller may agree to cover some of the costs.
Average Closing Costs in Denver, CO
The closing costs for a Denver homebuyer usually amount to 3% to 5% of the sale price of the property. Given the median sales price for condos in Denver, Colorado which is $415,000 as of June 2019, closing costs would be approximately range from $12,450 to $20,750.
The seller, on the other hand, pays for the real estate agent’s commission, transfer tax, title insurance, escrow fees, property taxes, and a few most fees. The seller usually pays for listing agent’s commission, which is about 3% of the home’s value, as well as the buyer’s agent’s commission, which is also 3% in most cases. Transfer tax in Denver is $36. The owner’s title insurance which protects the new owner from issues with the home’s title, can range between $1,000 and $4,000.
Escrow fees are usually split by the buyer and seller. This may either be a flat fee that amounts to around $500 to $2,000, depending on where the property is located, or about 1% of the home sale price.
Breakdown of Closing Costs in Denver, CO
- Appraisal Fee
- Credit Report Fee
- Loan Origination Fee
- Loan Discount
- Title Insurance Fees
- PMI Premium
- Prepaid Interest Fee
- Escrow Accounts
- Recording Fees
- Transfer Taxes
- Agent Commission
- Transfer Tax
- Title Insurance
- Escrow Fees
- Prorated Property Taxes
- HOA Fees
- Credits Toward Closing Costs
- Attorney’s Fees
How Can a Denver, CO Homebuyer Lower Their Closing Costs?
Going through the list of closing costs for homebuyers can be a bit daunting, especially if you are a first time homebuyer. But, every responsible homebuyer would have to learn about these fees and charges. This knowledge will be your tool in negotiating with the seller and lenders into reducing your closing costs. Yes, the good news is, closing costs are not set in stone, and there are a few things a homebuyer can do to get a better deal from your home purchase.
1. Choose a Brokerage Firm That Offers a Rebate on Its Commission
While most homebuyers negotiate with their broker to lower their broker’s fee, there is one more thing you can do to further reduce your closing costs. You can offer to do some of the legwork yourself in exchange for a percentage of the commission that is paid to the broker at closing. Some of the things you can do yourself without the help of your broker are checking property listings, viewing virtual tours, and going to open houses.
2. Spend Time Researching About the Fees and Charges in Your Closing Costs List
Familiarize yourself with the closing costs included in your list. Different lenders may use different terms, so be sure to ask them to explain each item. There are instances when certain costs are bundled together and repeated as a separate item in the list. If you notice that something seems to be unnecessary, redundant, or vague, you can negotiate to have these items removed.
3. Shop Around and Get Quotes from More Than One Lender
Aside from using different terms in their closing costs lists, lenders also offer different rates. With that said, it is best to shop around and ask several lenders for their quotes. This way, you are able to compare which one would give you the lowest overall costs at closing. In fact, this practice, which most homebuyers often fail to do, can save you around one-eighth percent to a half-percent of your loan. While this percentage may seem insignificant, a half-percent interest on a $500,000 home loan translates to an annual savings of $2,500. Furthermore, based on a recent study, a homebuyer can save as much as $1,500 by getting one extra rate quote and at least $3,000 by talking to five different lenders.
4. Set Your Closing Date Towards the End of the Month
One more way you can reduce some of your closing costs, such as your prepaid daily insurance charges, is to set your closing or settlement date towards the end of the month. By doing so, there are less number of days from your settlement date to the start of the succeeding month, and so your cash outlay for prepaid or “per diem” interest will be lower. You can compute for your savings by multiplying your loan amount by your interest rate then dividing the result by 365 to get your daily interest charge. Next, multiply that number by the days of left in the month. The result is the amount that you will have to pay at closing. In effect, having less number of days from closing to the start of the next month results to lower prepaid interest charges.
If you are in the market to purchase a condo in Denver, CO, we can help you find the perfect one for you. With almost 20 years of experience in residential real estate, you can rely on our strong negotiation skills and attention to detail to ensure a smooth and successful transaction from start to end. Feel free to give us a call at 720-437-0224 if you have any questions or if you would like to schedule an appointment. You can also send us an email at [email protected] and we will get back to you the soonest possible time.