What Are Closing Costs in Massachusetts?

"Closing" is the last step of buying and financing a home and when the property is officially transferred from the seller to you. At Closing you and all the other parties in the mortgage loan transaction sign the necessary documents.

Your Closing may include some or all of these entities: real estate agents, your attorney, the seller's attorney, lender's representative, title and escrow firm representatives, clerks, secretaries, and other staff. Closing can take anywhere from one to several hours depending on contingency clauses in the purchase offer, or any escrow instructions needing to be executed.

Most paperwork in closing or settlement is done by attorneys and real estate professionals. You may or may not be involved in some of the closing activities; it depends on who you are working with.

Prior to closing you should have a final inspection, or "walk-through" to ensure requested repairs were performed, and items agreed to remain with the house are there such as drapes, lighting fixtures, etc.

In many states the settlement is completed by a title or escrow firm in which you forward all materials and information plus the appropriate cashier's checks or bank wire so the firm can make the necessary disbursement. Your representative will deliver the check to the seller, and then give the keys to you.

Closings in Massachusetts – Residential mortgage closings in Massachusetts require the substantive participation of a Massachusetts-licensed attorney. The attorney's responsibilities include reviewing title, explaining the mortgage documents, and ensuring proper disbursement of mortgage funds. The closing attorney represents the lender and does not automatically represent you as the buyer. Confirm whom the attorney represents; you may retain your own attorney to review your Purchase and Sale Agreement and advise you throughout the purchase.

For a Massachusetts home purchase, the deed and mortgage are recorded at the appropriate Registry of Deeds. Ask the closing attorney to confirm the signing arrangements, required funds, recording status, and when you may take possession under your purchase agreement.

Government charges and property tax adjustments may apply to a home purchase, including a cash purchase. Which costs you pay depends on the transaction and applicable requirements:

Transfer Taxes – Transfer taxes may apply when property changes ownership. In Massachusetts, deeds excise is commonly called tax stamps and is generally paid by the seller. Ask the closing attorney to confirm the applicable charges and their allocation for your transaction.

Deed Recording Fees – Fees are charged by the applicable land records office to record documents such as the deed and mortgage. In Massachusetts, these documents are recorded at the appropriate Registry of Deeds, and buyers typically pay the recording fees for their deed and mortgage. Confirm the fees for your transaction with the closing attorney.

Pro-Rated Taxes – Property taxes are usually split between the buyer and the seller based on the number of days each owns the home during the billing period. In Massachusetts, the property tax fiscal year runs from July 1 to June 30, and most cities and towns bill quarterly, with payments commonly due around August 1, November 1, February 1, and May 1. Some communities bill semiannually instead. For example, if the seller has already paid the quarterly bill covering July through September and you close on September 15, you would generally reimburse the seller for the remaining days in that quarter. Your closing attorney calculates the exact adjustment. Some lenders may require you to set up an escrow account to pay these bills. If your loan does not include an escrow account, plan to set aside funds for these bills yourself.

State & Local Fees – Other state and local mortgage taxes and fees may apply.

There may be expenses paid to others like agents, attorneys, inspectors or insurance firms, even if you paid cash for the property:

Attorney Fees – You may hire an attorney to review your purchase agreement and represent your interests when buying a home. Confirm the fee and services included directly with the attorney. In Massachusetts, the attorney participation required for a residential mortgage closing is distinct from retaining an attorney to represent you as the buyer. Ask whether the quoted charges cover the lender's closing services, your own legal representation, or both.

Title Search Costs – A title search reviews public records for ownership information, liens, and other recorded matters affecting the property. Depending on the transaction, an attorney or title company may arrange the search. In Massachusetts, evaluating the legal status of title requires an attorney's legal judgment. Ask the closing attorney about any title issues that must be addressed before closing.

Homeowner's Insurance – Most lenders require you prepay the first year's premium for homeowners insurance, sometimes called hazard insurance, and must show proof of payment at the closing. This helps to ensure that the investment will be secured even if the property is destroyed.

Real Estate Agent Compensation – Real estate commissions are negotiable and are not set by law. Who pays and how much is paid depend on the agreements for the transaction. A seller may agree to pay toward the buyer's agent's compensation, but is not required to do so. Buyers should review their written agreement with their agent to understand the fee and any amount they may be responsible for paying. Ask your agent or attorney to clarify these terms before you sign.

The table below shows how closing costs are customarily divided in many Massachusetts home purchases. Your Purchase and Sale Agreement, your loan terms, applicable law, the parties’ written agreements, and loan requirements determine the actual allocation.

Some cost allocations may be negotiated, subject to applicable law and loan requirements. Confirm your transaction’s allocation with your closing attorney.

The major portion of other up-front expenses is the deposit or binder you make at the time of the purchase offer, the remaining cash down payment you make at closing, or can include:

Inspections – Lenders may require inspections, and you can make your purchase offer contingent based on satisfactory completion of some other inspections such as structural, water quality tests, septic, termite, roof and radon tests. You and the seller can negotiate these inspection fees.

Owner's Title Insurance – You may want to purchase title insurance in case of unforeseen problems so you're not left owing a mortgage on property you no longer own. A thorough title search can help ensure a clear title.

Appraisal Fee – Most mortgage loans require an appraisal to confirm the value of the property. The appraisal is ordered by the lender, either directly or through an appraisal management company, and the fee is usually paid by the borrower. The appraisal fee is listed on your Loan Estimate. You have the right to receive a copy of the appraisal before closing.

Money to the Seller – You'll need to pay for items in the house you want that were not negotiated in the purchase offer such as appliances, light fixtures, drapes, lawn furniture, or fuel oil and propane left in tanks.

Moving Expenses – If you are changing jobs, your new employer may pay for your relocation, otherwise you must figure in the moving costs such as truck rentals, professional movers, cash for utility deposits like cable, electricity, etc.

Repair Expenses – In the purchase offer, you can request that the seller set up an Escrow Account to defray any costs for major cleanup, radon mitigation procedures, house painting, appliance repairs, etc. Depending on the purchase offer contract and contingency clauses, you may discover that you have expenses upon moving in.

Example: Your purchase offer contract has a clause making the purchase contingent on a satisfactory structural inspection, and it's determined that the house needs a new roof. You can negotiate to have the seller arrange for the work to be done but, this will delay the closing date. You may have to agree to a higher price for house, or to pay some of the new roof repair expenses. Or you and the seller may split the cost using estimates from a contractor of your choice, and each of you will put funds into an Escrow Account. Or, the seller may be willing to reduce the sale price of the house, but either way cash will be needed for the new roof.

Time Investment – One often overlooks major up-front costs in buying a home. The time and expenses invested in house-hunting, plus the time spent searching for the best mortgage for you, the right real estate agent, an attorney, and other related things that take up your valuable time.

The Real Estate Settlement Procedures Act (RESPA) is a federal law that governs the mortgage settlement (closing) process. For most mortgage loans, federal disclosure rules under RESPA and the Truth in Lending Act require two forms that show your loan terms and closing costs in writing:

• Loan Estimate – Must be delivered or mailed to you no later than 3 business days after your mortgage application is received. It shows your estimated loan terms, closing costs, and cash to close.
• Closing Disclosure – You must receive it at least 3 business days before closing. It shows your final loan terms and closing costs.

Compare your Closing Disclosure with your Loan Estimate and ask about any differences before closing.