First-time homebuyers—both central Florida natives and those who are relocating here—are bound to have lots of questions about the homebuying process. While buying a home is an exciting endeavor, it can also feel overwhelming, full of unexpected delays and surprising costs. A common question we receive from many first-time homebuyers is, “What exactly do closing costs cover?” The experienced real estate professionals at Showcase Properties of Central Florida know just what to expect when handling closing costs and can answer any questions you may have.
What are closing costs?
Closing costs are the fees and that both a buyer and seller must pay in order to make a real estate transaction. They include things such as origination fees, title insurance, and recording fees. In Florida, a homebuyer can expect these closing costs to be about 2-5% of the purchase price, which is on par with the national average. This means if your home costs $400,000, you’ll end up paying $8,000 to $20,000 in closing costs. This is a large sum to pay, especially if it is unexpected.
When budgeting for your new home, accounting for closing costs lets you accurately estimate the total amount you’ll spend. The specific closing costs will be itemized in your loan estimate, which lenders are required to provide within three business days of receiving a mortgage application. However, before this point, it’s wise to know what to expect and where your money will be going.
Who is Responsible for Paying Closing Costs in Florida?
Essentially, both the buyer and seller are responsible for covering closing costs. Who covers what is subject to negotiation, though sellers generally cover fees such as real estate commissions and taxes related to the transfer of property, while most loan-related fees fall onto the buyer. It is typical during the negotiation process for the seller to cover some of the buyer’s closing costs, especially when inspections reveal necessary repairs or other issues. The real estate experts at Showcase are ready to help with the negotiation process when you are.
Common Closing Costs
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- Appraisal Fees. These fees cover the cost of a professional to evaluate a property and determine its market value. The lender requires an appraisal in order to secure a mortgage so that they don’t lend more than the property is worth. These fees are the homebuyer’s responsibility.
- Credit Report Costs. Another necessary part of the application process, buyers are required to cover the cost of a credit report. Compared to other closing costs, this fee is modest: usually $25 or $50.
- Inspection Fees. Having a professional inspector look at your potential new home could save you headaches down the road. Understanding the physical condition of the property allows you to negotiate the price, as well as help you avoid costly repairs or unexpected problems. It is also likely that the purchase agreement will include an inspection contingency, which will allow you to back out or renegotiate should issues arise. An inspection will generally cost between $250 and $500.
- Recording Fees. Recording fees are government-mandated and cover the cost of recording your purchase in public records. They’re required for all real estate purchases. In Florida, recording fees are charged per page for your deed and mortgage. Expect to pay $10 for the first page and $8.50 for each additional page.
- Title Insurance. Title Insurance protects both the buyer and lender against problems with the property’s title. Unexpected liens, issues with the chain of ownership, and other defects can hinder the property transfer. Title insurance keeps the transaction free of legal issues. While not always mandatory, having title insurance is highly recommended. Frequently, the seller may cover part, if not all, the costs of this insurance. In Florida, this insurance ranges between $500 and $3500, and is dependent on the cost of the home as well as local taxes and fees.
- Miscellaneous Taxes. In Florida, there is a Documentary Stamp Tax on all real estate transfer documents and mortgages. This tax is calculated at $.35 per $100 and is normally paid for by the seller. However, the payer should be explicitly named in the purchase agreement.
Less Common Closing Costs
- Survey Fees. Having the property surveyed ensures that the property boundaries easements are accurate and in compliance with local regulations. While not all lenders require this, some do. This will be stated in your loan estimate.
- Homeowners’ Association Fees. In Florida, HOA fees are usually prorated and covered at closing. The seller pays for HOA fees up until the date of sale, and the buyer pays the prorated remainder.
- Private Mortgage Insurance. If you paid less than 20% of your purchase cost as a downpayment, you would need to pay Private Mortgage Insurance (PMI) to protect the lender against loss. The annual cost runs up to $70 per $100,000 borrowed.
- Mortgage Points. If you are purchasing mortgage points for a lower interest rate, these fees are paid to the lender at closing.
- Upfront Mortgage Insurance Premium. This is an additional fee for homebuyers utilizing a Federal Housing Administration (FHA) loan. It is equal to 1.75% of the loan amount.
How Can I Save Money on Closing Costs?
Shop Around
Getting multiple offers from lenders to compare them is a great way to save money on closing costs. The total cost will be itemized on the loan estimates. Your loan estimate will also have itemized lists of “Services You Can Shop For.” Taking the time to compare prices from various companies is another way to save money. The same goes for Home Insurance—finding a great price not only saves on closing costs but on insurance premiums over time.
Seller Concessions
In some cases, and usually depending on the market and condition of the house, sellers might cover some closing costs in an attempt to attract a buyer. While there are legal limits to seller concessions, this is a viable option for many homebuyers. Showcase can advise you on how and when to negotiate seller concessions.
Seek Closing Cost Assistance
In some states—Florida included—it is possible to get financial assistance to cover closing costs if you’re eligible. Your closing costs will be combined into your mortgage, resulting in a higher rate, but it will save you money up front.
Who is Available to Help Me Understand Closing Costs?
Showcase Properties of Central Florida can help first-time homebuyers and new Floridians along their journey to home ownership. Serving Ocala, Citrus, and Alachua counties, Showcase has helped thousands of clients navigate the homebuying process. Along with helping you close on your new home, Showcase’s real estate professionals offer up-to-date property listings and real estate guidance. Subscribe to our blog for real estate information, central Florida lifestyle content, and community spotlights. Contact our realtors in Ocala or Gainesville and take your first step towards home ownership!