A closing estimate collects several kinds of payment on the same page. Separating fees from taxes, insurance and escrow deposits makes it easier to understand the total and compare it with the final statement.
The main categories of closing costs
Closing costs are the charges that have to be settled on the day title changes hands. They fall into four groups: what the lender charges to make the loan, what the title and closing companies charge to insure and record it, what government charges to record it, and money paid in advance for taxes and insurance that you would have owed anyway.
The four groups, and which is which
- Lender charges. Origination, underwriting, and any points paid to buy the rate down. These are negotiable in the sense that they vary between lenders, which is the argument for getting more than one estimate.
- Third party services the lender requires. The appraisal, the credit report, a flood determination, sometimes a survey. The lender orders them. You pay for them.
- Title, closing and recording. The title search, the lender's title policy, the owner's policy if you buy one, the closing fee, and the county's charge to record the deed and the mortgage.
- Prepaids and escrow. Interest from closing to the end of the month, the first year of homeowner's insurance, and a cushion of taxes and insurance deposited into escrow. These amounts fund the stated expenses and escrow account rather than pay only for closing services.
Who customarily pays what
Customary is the right word, because almost all of it is negotiable in the contract and custom only tells you where the negotiation starts. Buyers generally carry the loan charges, the appraisal, the lender's title policy and the prepaids. Sellers generally carry the owner's title policy, the closing fee on their side, their share of the year's property taxes up to the closing date, and the commission agreed in their listing contract.
Indiana settles property taxes in arrears, which is why a seller's column often includes a tax credit to the buyer for a period they already lived through and have not yet been billed for.
Seller concessions are not free money
A buyer can request a seller contribution toward closing costs. The agreed price, lender's contribution limits and appraisal still matter, so review the complete offer rather than treating the contribution as money outside the transaction.
Read the two documents you are given
You get an estimate early and a final statement before closing. They are designed to be compared line by line, and the comparison is the whole point of the exercise. Charges the lender controls are not supposed to move materially between the two. If something has moved, ask on the day you notice rather than at the table, because at the table there is no time and there is a room full of people waiting.
The wire, again
Whatever you owe moves by wire, and wiring instructions are the most attacked part of a real estate transaction. Call the title company on a number you looked up yourself, not one in an email, and confirm the instructions out loud. Verify any changed instruction directly through a contact method established independently of the message.
Buyers plan for the down payment and are caught by the rest, and it is usually discovered in the week when there is no flexibility left. I would rather have this conversation before you write an offer than explain in week five why the cash to close is larger than the number you have been carrying in your head. It is also the reason a lender conversation comes before a house, not after one.
Your actual figures belong to your lender and to the title company, and only they can give you a number that means anything. Whether anything on the statement helps you at tax time belongs to your CPA. What the contract obliges either side to pay belongs to an attorney.
I am not going to guess at any of it, and I would be careful with anybody who does.
If the sequencing of a sale and a purchase is the live question, the note on selling first or buying first covers it, and the buyers page sets out the order things happen in.
This note is general and describes common practice in Indiana. It is not legal, tax or lending advice, and your own figures depend on your loan, your contract and your county.