The price for real estate is not the only bill you will need to pay when purchasing property. There are numerous fees that participants in the process will charge you, which can be considerable and add a significant amount to your purchase price. You should understand the extent of the fees before you sign any contract to purchase property. Consulting with an experienced real estate lawyer can educate you on what you can expect during the closing process. This way, there will not be any surprises when you have to pay fees.
Lenders do not just charge you interest when you borrow money to purchase a home or other real estate. They will also charge you various fees for them to make the loan, and closing costs are a large part of the lender's profit. They will make money depending on their customers' interest rates and what they charge you. Then, they will tack fees onto your loan at the time of closing.
You may choose to pay closing costs in several ways. Some borrowers may want to pay the closing costs upfront through a check to the bank. Others may want to wait to spend the money, especially since they have already put so much into a down payment and other property-related costs. Then, you can roll the costs into your loan, which will become part of your balance, and you can pay those costs off over time, along with the principal. However, you will also pay interest on the closing costs when you roll them into the loan. If your interest rate is reasonable, it may make economic sense for you to do so.
You must pay some costs separately. For example, you must pay your lawyer directly and the title insurance company with a check. Before the closing, you need to clarify who you are responsible for paying so you can have the money ready along with the check.
Examples of Closing Costs
Here are some fees you will need to pay as part of your closing costs.
Points
A lender may charge you a percentage of the loan as an inducement for them to give you a lower interest rate. Although you may consider this a fee, it may be a wash for you because your interest rate is lower. Nevertheless, you should pay close attention to the impact points will have on your loan. The combination of the two can result in higher payments for you.
Loan Origination Fees
There are some costs for the lender to process your mortgage application. They must work to review the paperwork that you have submitted to them and then produce their own paperwork to originate the loan. You will end up paying for these services because the lender will charge you an origination fee to process your loan and paperwork.
The lender usually charges you between one-half and one percent of the mortgage amount as the origination fee. If your loan has a lower interest rate, you need to focus on the amount of the loan origination fee because the lender can be trying to make back the money on what they are charging you.
In general, you can expect closing costs to reach up to five percent of the home's purchase price. You should always shop around to compare what vendors or lenders may charge.
Title Insurance Fees
You need to be sure that the seller has the ability and ownership interest that allows them to transfer the property to you. If the seller could not transfer you the property free and clear of defects in the title, you may end up paying a price if you do not have title insurance. You will need to purchase this insurance at the time of closing. Typically, title insurance will cost you between one-half and one percent of the property's price.
Appraisal Fees
Before qualifying for the mortgage, you must confirm that the home's value is not much less than the purchase price. If it is, the bank will not lend you the money because it will be responsible for the property if you default on the loan. You will need to pay a home appraiser to come to the property to evaluate it. Home appraisals are for a flat fee, partly because the appraiser should never have an incentive to mark up the home's valuation.
Inspection Fees
You will also need an inspector to come to the property to see if any defects can affect the home's sale. If there are any problems, you may need to adjust the purchase price or walk away from the deal altogether.
Attorney's Fees
You should hire a Florida real estate attorney to guide you through the closing process. You must review many documents before closing on the property, and a real estate attorney can protect your interests during the closing process. They can deal with any issues, such as negotiating with the seller's attorney on your behalf if something affects the property or even jeopardizes the transaction. Real estate attorneys generally charge a flat fee for their services, although they may charge more if the transaction is more complex.
Transfer Taxes
The local and state governments may charge a fee to transfer ownership of real estate property, where you will have to pay a transfer or stamp tax to have the deed in your name. Florida has a recording fee and a nonrecurring intangible tax.
Generally, transfer taxes are the seller's responsibility. However, they may try to negotiate this fee with the buyer during the sales process. If it is a seller's market, the seller may ask that the buyer pay the transfer tax.
Escrow Fees
Your transaction with the other party goes through an escrow company instead of being executed directly with the counterparty. The buyer pays the escrow company, who then gives the money to the seller after deducting fees that the seller may pay. The escrow company provides a fee for the processing and administrative services. Escrow fees are often 1-2 percent of the home's purchase price, and it is a fee that the buyer pays.
Seller Closing Costs in Florida
The buyer is not the only party who must pay closing costs in a Florida real estate transaction. The seller also pays a large part of the transaction's proceeds in their own closing costs. The seller does not have a mortgage to take out, but they may have their fees associated with paying off the balance of their mortgage loan.
The seller will pay the real estate agent for their service, usually paying both the buyer's and seller's agent commissions. However, the entire way that real estate brokerage commissions work is about to change in the wake of a massive litigation settlement. The seller will also usually be responsible for transfer and other taxes associated with the sale of the property.
Strategies to Minimize Closing Costs
Many potential companies are competing to do business with you. As the costs of mortgages have risen, you may have more leverage than you think when it comes to closing costs. You can negotiate with a mortgage or other service provider to lower their costs as a condition of doing business.
Alternatively, you can shop around and compare costs. Service providers may offer different prices, and you can get a better deal. Any time you do something significant, you should get at least three price quotes to compare costs. Taking the first offer without getting a true sense of the market can cost you money.
Always ensure you understand all the fees you have to pay. Under state and federal laws, lenders must disclose all the fees they charge prominently and upfront. It is then up to you to compare costs among lenders. If the lenders disclose their fees, they have a wide latitude to charge what they want, so it is up to you to understand what you are paying.
Mortgage Lenders Must Fully Disclose Closing Costs
Federal law regulates mortgage lenders and how they may charge you. Lenders must disclose all costs associated with the loan and cannot charge you hidden fees. An extensive set of federal regulations governs how the lender must tell you about these costs.
You must understand your rights, and TILA protects you as a borrower. The mortgage lender can charge you fees, but you need to know how much they are before you agree to the loan. The law also prohibits lenders from steering you into a loan product with higher fees.
You can file a civil lawsuit if you believe the lender has charged you hidden fees violating TILA and can qualify for compensation. Still, you should closely review any documentation the lender provides you before you take out the loan to ensure you understand the fee structure. The lender may have disclosed fees towards the back of the paperwork (although the law prohibits them from using small print to describe these costs).
Avoiding Pitfalls and Traps for Unsuspecting Borrowers
Before signing anything, you need to review the exact terms of the loan and what the lender proposes to charge. You should compare the terms of one loan against the other to understand the costs and have a basis for comparison.
Your loan documents are a contract between you and the company. The terms of the document bind you, and you must pay the fees. Mortgage and other closing costs are all upfront, so you must pay right when you take out the loan. If the fees were wrongful, you will have to file a claim or lawsuit to try to recover them. It is always better to know what you are paying before you pay it.
If a lender is offering you something that seems too good to be true, chances are that it is. One lender should not give you terms dramatically different from what every other lender offers. They cannot stay in business that way. Also, a mortgage lender may offer some dramatically lower fees, but they may try to make them up in other ways.
You need to consider closing costs when you are bidding on a property or when you are selling one. How much you will need to pay in closing costs may determine your budget for buying the property and how much you can afford. Ensure that you understand what you are paying and everything that is your responsibility. Your loan can include many of these costs, but you will still need several checks at the closing to give to the necessary parties.
How a Florida Real Estate Lawyer Can Help With Closing Costs
Many buyers and sellers are often caught off guard by the unexpected expenses that can arise during closing, but a Florida real estate lawyer can be an invaluable asset.
One of the main ways a lawyer can help with closing costs is by reviewing the contract for any discrepancies or hidden fees. They know how to analyze the legal documents so all charges are legitimate and necessary. This can save you from paying unnecessary expenses at closing.
Your real estate lawyer can also negotiate with the other party to minimize or eliminate certain closing costs. They can advocate for you and seek alternative arrangements that are more favorable. Their goal is to ensure that you do not pay excessive costs and that the settlement statement accurately reflects the agreed-upon terms.
A real estate attorney can help with closing costs and keep your obligations as low as possible. This is far from the only thing they can help with during the closing process and your entire real estate transaction. They can also draft and review all paperwork, contracts, and documentation to make sure it is accurate and in line with Florida laws and the agreement between you and other parties.
Your real estate attorney makes sure the closing process goes as smoothly as possible, including that you have the necessary closing checks and do not have to pay unnecessary costs. Consult your real estate lawyer today.