We all know that closing costs are those fees paid by buyers and sellers at the end of a real estate transaction when everything is finalized, dotted lines are signed, and money changes hands. What many of us are not so clear about is what those costs are really for and who pays what. And what muddies the water even more is that the contract often stipulates transferring some of the closing costs to buyers or sellers, which would have been hammered out during negotiations. So let’s try to understand closing costs when buying or selling a house in New Jersey.
Closing Costs When Buying a House in New Jersey
Generally, with respect to closing costs, buyers’ expenses include appraisal fees, mortgage insurance, homeowners insurance, and property taxes. Basically, the closing costs when buying a house in New Jersey fall into two broad categories: “costs associated with buying a home and taking out a home loan; and costs associated with owning a home.”
Here’s a breakdown . . .
These fees vary from lender to lender, but there are some commonalities. “For example, some lenders make mortgage borrowers pay for discount points in order to receive the lowest interest rates, while others do not. As such, borrowers are entitled and encouraged to shop around and compare Loan Estimates from different lenders.”
Pre-paid interest is typical, though, for buyers. It usually includes only the days left in the first month’s billing period.
These fees go to all the professionals and service providers involved in the transaction and what led up to it – for example, inspectors and attorneys. Each of these fees usually doesn’t amount to much individually, but taken all together, they can add up to a pretty good sum.
Typically, these are homeowner fees among the closing costs that include homeowner’s insurance, property taxes, HOA dues, and so on. “Although those charges are usually assessed on an annual basis, they are paid and stored in escrow – i.e., a temporary bank account – to ensure that the cash is there when it’s time to pay. Mortgage lenders often maintain these escrow accounts for borrowers to minimize the risk of lending money.”
These fees usually include:
- Homeowners insurance
- HOA dues
- Property taxes
- Escrow account fees
Because the house is collateral for the mortgage loan, some of these have to be paid in part in advance at closing, especially property taxes to avoid government seizure for delinquency.
Closing Costs When Selling a House in New Jersey
Sellers, on the other hand, are responsible for other closing costs, most often agent commissions and ownership transfer fees.
The most significant of the closing cost for sellers is the real estate agent commissions, for both the buyer’s and the seller’s agent.
“That’s usually a 6% hit to [the seller’s] bottom line — 3% of the home’s selling price to the agent on either side of the transaction. On a $250,000 home sale, that would amount to $15,000. And it doesn’t help to have just one agent involved in the sales process. A single real estate agent will expect to get the full 6% commission.”
TITLE INSURANCE POLICY
In addition to agent commissions, the seller is typically expected to pay the cost of the lender’s title insurance policy.
Before the sale can go through, a title search must be conducted. The purpose of this title search is to verify ownership – to make sure that that the seller actually does own the property (without any encumbrances such as liens or judgments) and that she can actually sell it.
“A title policy protects the lender (and the new home buyer if they opt to buy a policy of their own) against unexpected ownership claims that may arise against the property. While not common, an ownership claim can trigger legal disputes – and the fees that come with them.”
RECAP OF New Jersey SELLERS’ CLOSING COSTS
Closing costs for sellers, then, typically include all of the following:
- Settling of any outstanding liens or judgments against the property
- Tax for property or deed transfer
- Recording fees
- Agent commissions
- Title insurance
- Needed repairs discovered by the inspections
In addition, there may be other closing costs that buyers and sellers agree to split between them.
Talk to Your Agent About Closing Costs
Obviously, then, closing costs when buying or selling a house in New Jersey can amount to a sizable chunk of money. That’s why, whether you’re buying or selling, you should talk to your agent about these costs long before you get to closing. A good agent can often negotiate a better deal on closing costs, being able to get the other party to agree to assume some of them. Some of these costs are set, but many more are negotiable. Find out how our agents can help you lower your costs on the closing day. Be sure to send us a message or give us a call at (855) 932-8987.