What You Need to Know When Buying a Home
Purchasing a home involves more than just the down payment. It’s essential to understand the various costs associated with a real estate transaction to ensure a smooth and successful purchase. One important aspect to consider is closing costs, also known as settlement fees, which are expenses incurred by both buyers and sellers to finalize the transfer of property ownership. Let’s dive deeper into closing costs, shedding light on what they entail and how they can impact your home purchase.
Closing costs encompass a range of fees, including mortgage-related and government-imposed charges. Let’s explore some of the most common expenses you may encounter during the closing process:
Title Search: This fee covers the verification of the property’s title, ensuring that it is free of liens or other claims and can be legally sold. Cost is $250+.
Owners Title Insurance Policy: By obtaining a title insurance policy, you can protect yourself from potential legal claims that may arise in the future regarding the ownership of the property. In Collier County (Naples), buyers pay for title insurance. In Lee County (Bonita Springs, Estero, Fort Myers) sellers pay for title insurance. Title insurance rates are set by the state. It is also worthy of note that Title Insurances is a mandatory requirement in the state of Florida. The rates are as follows: $5 per thousand for properties priced between $100,000-$1,000,000, $2.50 per thousand for properties priced between $1,000,000-$5,000,000, $2.25 per thousand for properties priced between $5,000,000-$10,000,000 and $2 per thousand for those priced in excess of $10,000,000.
Home Appraisal, Survey, Elevation Certificate: An appraiser’s fee is incurred to determine or confirm the fair market value of the home, while a surveyor’s fee may be charged if a survey is required to establish accurate lot lines. If the property is in a flood zone, an elevation certificate may be required by a lender. Home appraisals range form $500+ depending on the size/location of the home, Surveys from $500+ and Elevation Certificates from $600+.
Home Inspection: Hiring a professional home inspector is crucial to assess the condition of the property and its major components, providing you with valuable insights before finalizing the purchase. A seller may choose to do this prior to placing the home for sale. A buyer should have an inspection as part of their due diligence process. This is based on the size of the home or condo but a General inspection will cost $500+.
Property Taxes: These are the taxes buyers pay to state, county, and local authorities to support essential services such as schools, road maintenance, fire protection, and utilities. In Florida we pay property taxes in arrears. Buyers will receive a credit at closing for the property taxes they will be billed for in November of the year of purchase. Sellers will be debited for the prorated amount. Estimate approximately 1% of assessed property value for property taxes. This will allow room for the complicated formula in which the counties estimate the taxes due on an individual property. Technically Collier County has a 0.67% tax rate and Lee County has 1.04%.
Recording Fees and Transfer Taxes/Documentary Stamp Tax: Most states charge fees for recording purchase documents. In the state of Florida the seller pays doc stamp tax at $0.70 per $100 paid for property in every county except Miami Dade.
When securing a loan for your home purchase, there are additional fees to consider
Loan Origination: This fee covers the bank’s administrative services involved in creating the loan, including application processing, underwriting, and other related tasks.
Credit Report: Lenders require a copy of your credit report and scores, and this fee covers the cost of obtaining them.
Property Insurance: Lenders typically require a certain level of coverage to protect their investment. You may need to secure property insurance and prepay the premium to meet their minimum coverage standards. If the property is in a flood zone, the lender will likely require flood insurance as well. It is worth asking the seller if they have a current flood insurance policy that can be rewritten for the new buyer as it will provide considerable savings on the premium costs.
Mortgage Points or Discount Points: Paid directly to the lender at closing, these points allow you to lower your interest rate, resulting in long-term savings. It’s essentially “buying down” the rate.
Documentary Stamp Tax: This is due on a mortgage, lien or other evidence of indebtedness filed in Florida. So buyers with a loan will pay $0.35 per $100 of the amount of indebtedness or loan.
Lender’s Title Insurance: Paid for by the buyer, it only protects the lender and does not extend to the buyer or seller. Any claims made against the property that could potentially impact the loan are covered by the lender’s title insurance.
While this list covers some common closing costs, it’s crucial to consult with a trusted real estate advisor in your area to gain a clear understanding of the specific fees you’ll be expected to pay when closing on your prospective home. They can provide tailored guidance based on local regulations and practices, helping you navigate the process with confidence.
Don’t let closing costs intimidate you – with the right knowledge and guidance, you can make informed decisions and move closer to your dream home.
Contact me today to learn more about the closing costs associated with purchasing a home in Naples Southwest Florida. I am here to assist you every step of the way, ensuring a smooth and successful home-buying experience.
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