Today we are going to wrap up the conversation we started during the last episode concerning Closing Costs. During the last episode we discussed those relating to the seller. Today, we will review those of the buyer.
In FL, homebuyers typically pay between 3-3.5% of the sale of the home toward those costs. The types of costs that could be involved are:
1. Lender fees
3. Escrow Account Pre-funding (Property tax, insurance, HOA/CONDO)
4. Closing fee to the party that handles the closing
5. Filing/recording fees
Details for each are:
1. Lender fees: Unless you pay cash, a lender will be required, and they have various fees that may be part of your closing costs.
a. Application fee –You pay an application fee for them to process your paperwork.
b. Appraisal – this is typically paid out of pocket, but since it is part of the total cost to you to purchase a home it is worth mentioning
c. Loan Origination Fee-many lenders don’t charge a loan origination fee. If they do, it is typically around 1 %.
d. Credit Report Fee – lenders will pull your credit score from the big three and use the middle one in most cases.
e. Survey – If the seller has a survey and they haven’t made any changes that affect the exterior layout, like adding a fence or a pool, then their survey should be able to be utilized saving this charge.
f. Title Insurance – An up-front, one-time fee paid to the title company that protects a lender if an ownership dispute or lien arises that it didn’t find in the title search. Owner’s title policy is optional and offers you the same coverage
g. FHA mortgage insurance premium / VA funding fee
h. Points, or discount points -Points refer to an optional upfront payment to the lender to reduce the interest rate on your loan and thereby lower your monthly payment. 1 point = 1% of the loan amount. In a low interest-rate environment, it might not save you much money but is very good when the rates are higher.
2. Taxes: In FL, because we do not have income tax, the State needs a funding source for roads and so on. When real estate is sold, both the buyer and seller may have documentary stamp taxes and the buyer may have an intangible tax that will be paid as part of the closing costs. If the buyer takes a mortgage their doc stamp is . 35$ per $100 of the loan amount. Buyer’s taking a loan will also have an intangible tax at .02$ per $100 based on the loan amount. If a buyer is able to pay cash they will avoid both of their taxes. In other states, who pays what may be different, and the calculations will most likely vary as well.
3. Escrow pre-funding. Property taxes in FL have an ad valorem and non-ad-valorem, assessments.
Ad Valorem are based on the calendar year from Jan 1- Dec 31, and are paid in arrears. In other words, you pay for 2020 at the end of 2020, not upfront or as you go. The tax is based on the assessed value of the property. NON ad valorem taxes are not based on value but a unit of measure determined by the levying authority. For example, the county may have an assessment for fire and rescue, storm water utility, and solid waste collections. These are not paid in arrears. As part of the closing the party handling the closing will determine who owes what based on the closing day. Let’s say you are closing on the purchase of the property on May 15th. The seller would owe taxes from Jan 1- May 14th. The buyer “owns” the closing date, so they would owe from May 15th to Dec 31st. The closing agent will calculate and prorate so that each party only pays what they owe. Since Ad Velorums are due at the end of the year they will owe their portion as a credit to the buyer. However, the since the seller has already paid the non-ad velorm taxes, the buyer will owe a credit back. Sounds confusing, however, it is all calculated and will be reflected on the settlement statements.
You will also have pre-paid homeowner’s insurance to make sure that you have proper coverage. Depending on the community, you may have pre-paid escrow paid for a specific period of time for the HOA or condo association fees
4. Closing fees: The party handling the transaction will have specific duties beyond just managing the signing of documents. They are a neutral third party that will usually hold the earnest money deposit. A closing agent or their office will do a property title search to ensure that the party selling has the legal right to do so and that there are no encumbrances on the property. The last thing you want is to buy a home only to find out there is a pricey lien on it. Title will also order a survey as needed to make sure nothing has been added that crosses into a neighbor’s yard or vice versa. They will draw up the appropriate paperwork, deliver the documents to the interested parties, ensure they are signed, and filed properly. After funding has taking place (this is when the lender releases the funds to them) they disperse the proceed to the seller, pay any tax debt as needed, distribute commissions and any other funds as required per that transaction. The closing can be done by a title company or attorney. Which ever it is will also order the lenders title policy
5. Recording and filing fees- the county charges a fee to file and record the transfer of property from one owner to the next
You cannot negotiation what the fee is or whether it is charged by the state, county, lender or association. However, as part of the offer negotiations you may be able to get the seller to contribute some or all of the funds for the buyer’s closing. Instead of getting a rock bottom price, you may be able to offer a little more, but have the seller apply that amount to the buyer’s closing cost.
For example, If a seller has a home listed at $300,000 and fair market value for that area and home is somewhere between $275k and $295K, if you offered $275 and then asked for $10K in closing costs, the seller would have no reason to accept the offer since they would net $265 and that means they sell their home below market value. On the other hand, if you offered $290 and asked for $10K in closing costs, then the seller would net $280K, still within market value, and the purchase price isn’t so high that the home wouldn’t appraise. There are ways of making it work. You just need to rely on a good agent who will do the research to make sure it is good for all parties.
All in all, if a buyer has a decent credit score, some banks work with you as low as 580 credit score, and some funds for a down payment, I can help them work on how to get a seller to contribute to the closing costs so that they can still get into a home that they own. As we record this in March of 2020, interest rates are the lowest they have been since 1971. That means you can buy a home and have the mortgage payments be less expensive than what it would be to rent a similar home.
If you have any questions about how this might work for you, I am a no pressure gal. Give me a call, 941.960.5115 or Go to my website, c21shelley.com and fill out the form there. I will email or call you back and answer the questions you have. If I can continue to help you after that, great! I love working with people to meet their goals. If just getting questions answered is what you need, that is fine too. This isn’t about me pressuring someone to purchase a home, it is my way of being available to answer questions and be helpful in what ever manner I can.
From my podcast “Selling Sarasota”: