You're saving for your first house.
You've figured out your down payment.
You're feeling pretty good.
Then somebody says:
"Don't forget about closing costs."
And you're thinking...
What are closing costs? And how much more money am I supposed to come up with?
Welcome to one of the least exciting but most important parts of buying your first home.
Let's make it a little less confusing.
What Are Closing Costs?
Closing costs are expenses associated with obtaining your mortgage and completing the purchase and transfer of a home.
They are separate from your down payment.
According to the Consumer Financial Protection Bureau, closing costs are the upfront costs charged to obtain your loan and transfer ownership of the property.
That distinction matters.
If you're planning to put $20,000 down, don't automatically assume $20,000 is all the cash you'll need for the entire transaction.
How Much Are Closing Costs in New Jersey?
There isn't one percentage that every New Jersey buyer pays.
Your costs depend on factors such as:
Purchase price
Mortgage program
Loan amount
Lender
Property
Location
Taxes
Insurance
Title-related expenses
Negotiated credits
Closing date
Other transaction-specific circumstances
For general planning purposes, the CFPB says closing costs typically run approximately 2% to 5% of the purchase price, excluding your down payment.
Let's put that into dollars.
On a hypothetical $400,000 purchase:
2% = $8,000
3% = $12,000
4% = $16,000
5% = $20,000
That's a planning range, not a prediction of your actual costs.
Your lender's estimates and ultimately your Closing Disclosure are much more important than a generic percentage from the internet.
What Can Be Included in Closing Costs?
Depending on your transaction, you may encounter costs involving:
Lender Charges
Your lender may charge certain fees associated with originating and processing your mortgage.
Appraisal
Your lender may require an appraisal of the property as part of the mortgage process.
Title-Related Costs
Your transaction may include title-related expenses and title insurance.
Government and Recording Charges
There may be charges associated with recording and transferring documents.
Homeowners Insurance
You may need to pay certain homeowners insurance costs upfront.
Property Taxes
Depending on the timing of the transaction and how taxes are handled, property-tax-related amounts may affect the funds due at closing.
Prepaid Interest
Mortgage interest may be collected for the period between your closing date and the end of that month.
Initial Escrow Funding
If your lender establishes an escrow account for taxes and insurance, money may be collected at closing to establish the account.
The CFPB identifies appraisal fees, title insurance, government taxes, prepaid property taxes, homeowners insurance, and interest among costs buyers may encounter in connection with closing.
Closing Costs vs. Cash to Close
Here's an important distinction.
Closing costs and cash to close aren't necessarily the same number.
Your cash to close takes the broader transaction into account.
According to the CFPB, estimated cash to close generally incorporates your down payment and closing costs while accounting for items such as deposits you've already paid, seller credits, and other adjustments.
So if your Closing Disclosure says one number for total closing costs and another for cash to close, don't assume something is wrong.
Ask your lender or closing professional to walk you through it.
Can the Seller Pay Some of My Closing Costs?
Sometimes a transaction can include a seller credit toward certain buyer closing costs, subject to the contract and applicable mortgage rules.
Whether that's realistic depends on the property, market, financing, seller, and offer strategy.
It isn't free money.
The CFPB points out that seller credits can sometimes be negotiated, but the economics of the deal still matter and a seller may seek a higher purchase price in exchange.
This is something we can discuss when we're deciding how to structure your offer.
In a competitive situation, asking for a large credit may affect how attractive your offer looks.
In another situation, it could make sense.
Real estate is rarely one-size-fits-all.
Can Your Lender Help With Closing Costs?
A lender may offer credits that offset certain upfront costs.
Again, there can be a tradeoff.
The CFPB explains that lender credits are typically associated with accepting a higher interest rate than you otherwise might receive.
So don't just ask:
"Can you lower my closing costs?"
Also ask:
"What does this do to my interest rate and total cost?"
Are There First-Time Homebuyer Programs That Help?
Potentially.
NJHMFA currently offers assistance that qualified buyers may use toward down payment and/or closing costs.
Its statewide Down Payment Assistance Program provides up to $15,000 based on the county for qualified buyers using an eligible NJHMFA mortgage. Qualified first-generation buyers may be eligible for total assistance of $17,000 or $22,000, depending on the county and program requirements.
For South Jersey buyers, that's absolutely worth asking a participating lender about.
But programs change, funds and eligibility can be limited, and not every buyer will qualify.
Verify what's currently available before building your purchase plan around any assistance program.
When Will I Know My Actual Closing Costs?
Your lender will provide a Loan Estimate after you apply for a mortgage.
The CFPB explains that the Loan Estimate includes information such as your estimated interest rate, monthly payment, and total closing costs.
Later in the transaction, you'll receive a Closing Disclosure showing the final loan terms and closing-cost information.
Review these documents.
Seriously.
Don't see a document full of numbers and think, "I'm sure it's fine."
Ask questions.
This is your money.
Don't Spend Every Dollar on the Down Payment
One of the themes you'll see throughout my first-time homebuyer advice is this:
Buying the house isn't the finish line for your bank account.
You're about to own the thing.
The water heater doesn't care that you just paid closing costs.
Neither does the HVAC system.
I'd rather see a buyer think about the whole financial picture than focus exclusively on putting the largest possible amount down.
Plan for the down payment.
Plan for closing costs.
Plan for moving.
And try to maintain an emergency cushion for life after closing.
Buying Your First Home in South Jersey?
Closing costs can sound intimidating when you first see all the different expenses involved.
But once somebody breaks the numbers down for you, they become much easier to understand.
If you're thinking about buying your first home in Camden County, Burlington County, Gloucester County, or elsewhere in South Jersey, you don't need to know all of this before reaching out.
That's what we're here for.
Tell me where you're at, even if that's simply:
"I want to buy a house, but I have absolutely no idea what I'm doing."
We can work with that.
Keller Williams Realty Cherry Hill: 856-685-1688
Contact me: 856-701-0440 | david.raymond@kw.com
Read How Much Money Do You Need to Buy a House in New Jersey?
Read Do You Need 20% Down to Buy a House in New Jersey?
Start with my Step-by-Step Guide to Buying Your First Home in New Jersey.
This article is for general educational purposes and is not mortgage, legal, tax, or financial advice. Closing costs, loan terms, programs, and eligibility requirements vary and can change. Consult the appropriate licensed professionals regarding your individual transaction.
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