What You Should Know About Title and Escrow Fees

What You Should Know About Title and Escrow Fees

Among the main areas of closing for a real estate transaction are the title and escrow fees. When you’re buying a home, you need to be prepared with the right closing cost information, so you can fully understand those fees, and your other expenses. Here’s what you should know as a home buyer.

The Title and Escrow Basics

A title company is the one responsible for handling title and escrow needs for both home buyers and sellers. During the real estate transaction, the title company performs a search to ensure the home has “clear” title. That means there aren’t any recording errors, unpaid liens, or other issues with the title to the property. The title company also arranges a title insurance policy for the buyer, and one for the lender. That insurance coverage protects you the whole time you own your home, and the lender will also be protected until the mortgage is fully paid off.

Escrow includes a lot of areas, such as funds management, and the managing of all documents that are related to the home purchase. It is very important to have a title company, or another qualified third party such as an attorney, to handle the transaction. That not only provides accuracy, but also protects privacy and security, as well.

Fees and Costs for Title and Escrow

Title and escrow fees are part of the closing costs when buying a home. The total amount of the cost varies, depending on where you live, the sale price of the property, and the mortgage company you’re working with. Usually, the closing costs are between 1% and 3% of the total purchase price. Many title companies use specific formulas to determine how all of these fees are calculated. There is usually a base rate, and then there’s a percent-per-thousand-dollars, based on the purchase price.

Particularly with title insurance, there are also additional variables that can affect cost. These can include seller negotiations, state regulations, and any specific components that make up the policy.

Who Pays Title and Escrow Fees?

Both buyer and seller typically share the costs for a title insurance policy. Generally, the seller pays for an owner’s policy, and the buyer pays for a lender’s policy. However, the lender’s policy is usually less expensive than the owner’s policy. It only covers a more limited set of risks. It is not uncommon for buyer and seller to have some negotiations, when it comes to the details of who pays the closing costs.

The Distribution of Fees

When it’s time for the actual closing, an escrow officer distributes fees and closing costs. These most often include:

  • Taxes and fees for the county
  • Charges from third-party providers
  • Real estate agent commissions
  • Loan and lender fees
  • Profits given to the seller

After a closing is completed, the title company ensures that all documents are properly recorded with the county, along with any other necessary agencies. The recording is very important, because it ensures that the legal rights of the new homeowner are adequately secured and can be enforced. Once the transaction is recorded, the funds are distributed to the parties.

Other Common Fees in Real Estate Transactions

The majority of the cost in a home purchase, outside the actual price of the home itself, is in the fees for title and escrow. Depending on which property is purchased, and any specific needs of the home buyer, there could be other costs as part of a completed transaction. There are also appraisal fees will be needed when evaluating the home, and those could help ensure that the home is worth the selling price.

Depending on the location of the property, other fees that are commonly seen include:

  • Closing costs for the mortgage loan
  • Charges for checking the credit report
  • Fees for assignment and recording
  • A closing letter for disbursement of funds
  • Flood certification

Certain title and escrow fees are completely unavoidable, but some are negotiable. By working closely with a trusted title company, you’ll enjoy transparent communication throughout the transaction. That allows you to complete it more easily, and with confidence.