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What to know about Closing Costs

When buying a home, your financial obligation includes more than just the down payment and monthly mortgage. You’ll also be on the hook for the costs required just to close the deal, or Closing Costs. In their simplest form, closing costs are all the fees a buyer incurs in a real estate transaction just before ownership of the property is transferred.

Although the exact amount of closing costs varies based upon the homebuyer’s individual situation, homebuyers should be aware that closing costs can add up to several thousand dollars or more. It is important for homebuyers to budget accordingly and plan ahead for these additional costs before purchasing a home.

These fees are typically paid at closing, which is the final step of the home-buying process where all parties sign the closing documents and record the house deed. 

What fees can you expect at closing?

There is no set or standard amount for fees to be paid at closing as they differ based on where you live, the type of property you’ve bought, and what loan you got from the bank. Some of the services that you can expect to pay for include:

  • Application fee – The cost for the lender to process your application.
  • Attorney fee – This pays for an attorney to review the closing documents on behalf of the buyer or the lender.
  • Closing fee – This is paid to the title company, escrow company or attorney for conducting the closing.
  • Title Search – This fee is paid to the title company for doing a thorough search of the property’s records, ensuring that no one else has a claim to the property.
  • Origination Fee – This fee covers the lender’s administration costs.  It’s usually about 1 percent of the total loan but you can sometimes find mortgages with no origination fee.
  • Credit Report – A credit report is pulled to get your full credit history and score.  Your credit score plays a big role in determining the interest rate you’ll get on your loan.
  • Underwriting Fee – This fee is paid to the lender, covering the cost of researching whether or not to approve you for the loan.
  • Loan Discount Points – This does not apply to all.  “Points” are prepaid interest.  One point is equal to one percent of your loan amount.  This is a lump sum payment that lowers your monthly payment for the life of your loan.
  • Prepaid Interest – Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
  • Property tax – Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
  • Transfer tax – This is the tax paid when the title passes from the seller to the buyer.
  • Recording Fees – A fee charged by your local recording office, usually city or county, for the recording of public land records.
  • Homeowners’ Insurance – This covers possible damage to your home. Your first year’s insurance is often paid at closing.

How much are closing costs in Florida?

Recent surveys suggest that closing costs range between 2% and 5% of the purchasing price of the property, with the average being around 3% of the sales price.

For example, if you are buying a home at $250,000 closing costs may total up to $12,500. To help prepare for this purchase it is wise to speak with your mortgage lender ahead of time and work thoroughly through closing documents so that you fully understand all closing costs before signing them.

The lending institution notes the closing costs in a loan estimate, gives you a copy of the document, and then confirms the fees in a closing disclosure statement. It is important that you understand all of the costs involved, and it is up to you to make sure that the numbers in the loan estimate match those in the closing disclosure statement.

How can home buyers avoid closing costs?

Typically, the funds needed for closing costs cannot be borrowed.  There are a few ways home buyers can avoid paying excessive closing costs. One way is by negotiating with the seller on who will pay what fees. Sometimes, a motivated seller will agree to cover some (or all) of the costs of closing, just to ease the deal.  Researching favorable loan terms can lead to a lower interest rate and creating an escrow account may free up funds when it’s time to close. Taking these steps into consideration can save time and money in the long run when buying a home. 

In summary, closing costs are fees paid to cover the cost of processing and funding a mortgage loan. They vary from state to state, but in Florida you can expect to pay around 2-5% of your home’s purchase price. There are ways to reduce your closing costs, like negotiating with your seller or lender, and shopping around for a title company. The best way to prepare for closing costs is by knowing how much they will be before going into the home buying process. Now that you know all about closing costs when buying a home in Florida, you’re one step closer to becoming a homeowner!

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