Real estate closing costs are expenses that the buyer and seller must pay to complete the real estate transaction. They include various fees and taxes for important tasks, searches and obligations.
Knowing how much you’ll need to pay can help you avoid surprises and ensure your mortgage lender is providing for them in your loan estimate.
In this closing costs guide, we’ll explain the key closing expenses and who pays for each one:
Real Estate Closing Costs Guide
How Much Will You Pay for Real Estate Closing Costs?
The total closing costs you can expect to pay varies with location and property value. But generally closing costs amount to between 2%-5% of the property purchase price.
Closing costs don’t include your down payment, but they can be negotiated. For example, the seller can agree to pay all or a portion of your closing costs.
According to ClosingCorp, the average U.S. closing costs for a single-family home is $6,087 (including taxes).
Mortgage lenders must provide you with a loan estimate detailing these costs within three days of receiving your loan application. They must also provide you with a ‘closing disclosure statement’ three days before closing, which details the actual closing fees and may have changed since the estimate.
Read Related: What Happens at a Real Estate Closing?
Average Closing Costs in Florida
ClosingCorp reports for Florida, the average closing costs are:
- Average home sales price: $375,368
- Average closing costs with taxes: $8,554
- Average closing costs without taxes: $4,484
- Percentage of Sales Price: 2.3%
Who Pays for Real Estate Closing Costs?
Generally, the majority of closing costs are paid by the buyer, with some paid by the seller. However, you can try to negotiate some costs, but in a seller’s market this may be unsuccessful.
Negotiating can be very useful if you predict you’ll have issues finding the money to cover all the costs to close.
Read Related: The Key Steps to a Successful Real Estate Closing
When Must Closing Costs Be Paid?
Closing costs are paid when each party has signed the required documents and contracts and everything is ready to transfer title from buyer to seller.
The closing day typically comes several weeks after your offer has been accepted. The precise date will be agreed upon between buyer and seller and will be dependent on other timeframes, including any loan processing.
Read Related: Commercial Real Estate Closing Checklist
What Real Estate Closing Costs Are There?
Real estate closing costs include:
Application fees are paid to the lender for the labor required to process your mortgage application.
Florida does not require a real estate attorney for closing, but it is highly recommended. These fees should be paid to cover legal expertise such as preparing and reviewing contracts and resolving any disputes.
Closing Fees or Escrow Fees
Closing (or Escrow) fees must be paid to the party responsible for closing – which may be an escrow company, title company or real estate lawyer.
Courier fees may be required to allow for quick and secure delivery of signed documents and contracts. However, a digital transfer may allow you to avoid these fees.
Credit Report Fees
To acquire your credit reports, you must pay a relatively small charge to your lender. However, some lenders may not demand it.
You may be required to deposit two months of mortgage insurance payments and property tax payments into an escrow at closing to satisfy your lender.
FHA Mortgage Insurance Premium
Upfront mortgage insurance premiums of 1.75% of the base loan amount must be paid for FHA loans at closing. You may also be able to roll it into your mortgage.
Flood inspector fees will reveal whether the property is in a flood zone and therefore at risk of flooding. If it is, you will need to take out flood insurance which is not included in your regular homeowners’ insurance coverage.
Homeowner Association Transfer Fees
Some property purchases require joining a community homeowner’s association (HOA). This is the case for townhouses, condominiums and homes in planned developments.
HOA fees cover switching ownership expenses and may be paid by either party, depending on the agreement.
Lenders usually ask for proof of homeowners insurance premium payments at closing.
Lead Paint Inspection
Older property may have been painted with dangerous and harmful lead-based paint. A certified inspector can reveal these dangers.
Title companies require an upfront fee that protects the lender from potential ownership disputes or liens that weren’t revealed in the title search.
Origination fees cover your lender’s administrative costs and are usually around 1% of the loan amount. Depending on your lender, you may face higher interest rates in exchange for not paying these fees.
Owner’s Title Insurance
This optional but recommended title insurance coverage protects you from any ownership challenges to the property. It’s optional but highly recommended.
Pest inspections can ensure you don’t buy a home with termites, nests or dry rot damage.
Prepaid Daily Interest Fees
These charges cover the interest that arises on your mortgage from closing until the first date of your mortgage payment.
These optional upfront payments to your lender can reduce the interest rate and lower your monthly payments.
Private Mortgage Insurance
Down payments lower than 20% may require a private mortgage insurance (PMI) policy to be taken out.
Property Appraisal Fee
Property appraisals can determine the property’s fair market value and your loan-to-value ratio.
Local property taxes should typically be paid within 60 days of the real estate purchase.
Rate Lock Fee
Rate lock fees are charged by lenders to ensure you get a fixed interest rate for a limited time – usually until closing. This rate lock prevents you from being hit by dramatic interest rate increases.
Recording fees will be charged by local recording offices for keeping record of the public land changes.
Survey fees are required to determine the actual property lines and boundaries.
Tax Monitoring and Tax Research Fees
These tax-related expenses ensure your property tax payments are monitored to avoid any issues with late or failed property tax payments.
Title Search Fee
Title companies or real estate lawyers can analyze public records to reveal there are no outstanding liens or disputes on the property.
Transfer taxes are imposed by the state or local government when transferring the title between seller and buyer.
Underwriting fees are paid to the lender for verification of your financial details such as: income, credit and employment.
Veterans Affairs Funding
If you have a Veterans Affairs loan (VA Loan), you will be required to pay a fee as a percentage of the loan amount. The fee total will vary depending on loan amount and military service classification.
How to Lower Your Real Estate Closing Costs
Negotiations can go a long way in reducing the total closing costs you’ll need to pay. You can:
- Use lenders that offer discounts.
- Apply for down payment assistance.
- Use no-closing-cost loans.
- Negotiate with the seller so they cover the closing costs, potentially for a higher sale price. Or, a seller may be desperate to sell if they’re been struggling to receive offers so are more inclined to help.
- Schedule closing at the end of the month to avoid prepaid daily interest charges.
- Lenders may allow you to pay your closing costs in your loan, however you will pay more for your mortgage.
Contact a Real Estate Closing Lawyer in Florida
If you’re buying a property in Florida and need assistance with the closing process and reducing closing costs, our Florida real estate attorneys can help.
We’ll guide you through the process, ensuring your rights are protected while also minimizing the impact of closing costs. We’ll also coordinate, prepare and complete documents related to the title, deed, transfer, and loan acquisition.
If you’re purchasing property or land in St Petersburg, Florida or Riverview, Florida, contact us today.
Our St Petersburg & Riverview real estate attorneys have extensive experience that can help you through these tricky moments, reviewing your contract, advising you on the next steps to secure your transaction, and successfully finalizing the purchase of your new home or commercial property.
Contact us today to schedule a free consultation.