Closing costs are a big concern for New Jersey home buyers, because they represent an out-of-pocket expense that typically must be paid up front. There’s also a lot of confusion surrounding this topic. With that in mind, here are five things you should know about home buyer closing costs in New Jersey.
1. Typical closing costs and pre-paid expenses for NJ home buyers are 2% to 3% of the purchase price.
The finalized amount of closing costs a buyer pays in New Jersey can vary, due to a number of factors. Generally speaking, a more expensive home will result in higher costs. But that’s just one variable that can affect the amount you pay to close on your home.
As of 2017, home buyer closing costs in New Jersey tend to average somewhere between 2% to 3% of the purchase price. But they can fall outside of this range as well, in some cases.
New Jersey home buyers who buy a home for $400,000 with a 20% down payment pay approximatley $6,700 in closing costs (not including pre paid expenses). Prepaids are not a fee, but are costs associated with the home that are paid in advance when closing on a loan. These include Property Taxes, Homeowner’s Insurance, and Mortgage Interest that will accrue between the closing date and month-end. Property Taxes and Homeowner’s Insurance are collected to put into your Escrow Account so that you have enough reserves to pay these bills then they are due.But again, there are quite a few variables that can affect the amount of costs you encounter. And in some parts of the state, the median home price might be above the $400,000 figure used in this example.
2. Costs include lender and third-party fees.
The majority of all closing costs do not come from the lender.
“Closing costs” is actually a collective term that refers to all of the various fees buyers and sellers encounter during a typical real estate transaction. For home buyers in New Jersey, these closing costs can include such fees as mortgage-related, title insurance/search fees, government recording fees, surveys, appraisals, attorney and more.
3. The seller can contribute to your closing costs.
Depending on the type of mortgage loan you are using — and the real estate “customs” in your local market — you might be able to get the seller to contribute money toward your closing costs. This is a common strategy employed by New Jersey home buyers looking for ways to reduce their closing costs. Check with your mortgage lender to find out if this is a viable strategy in your area.
With most loan programs, the seller is allowed to contribute funds toward the buyers costs. But the rules vary depending on the type of mortgage loan that is being used. For example, the Department of Housing and Urban Development allows sellers to contribute up to 6% of the buyer’s closing costs, when an FHA loan is being used. Other mortgage programs may limit the seller concession to a lower amount, such as 3%. It varies.
4. A lender credit could further reduce your costs.
Depending on the details of your financing situation, you might be eligible for a lender credit toward your closing costs. This is where you, as the home buyer and borrower, agree to take on a slightly higher interest rate in exchange for a credit.
In some scenarios, a slight increase in the interest rate could reduce the buyer’s closing costs by a significant amount. Please contact us if you have questions about this strategy, or anything else relating to New Jersey home buyer closing costs.
5. You will receive an estimate in advance.
When you apply for a mortgage loan, you should receive a document known as the “Loan Estimate.” As the name suggests, this document gives you an estimate of the costs you will have to pay on closing day. Shortly before that date, you should receive a second document known as the “Closing Disclosure.” It will show the actual amount that is due.
Want a loan estimate? NJ Lenders Corp. can provide you with an estimate of your closing costs, as well as your monthly mortgage payments. Please contact us if you have any questions relating to this topic, or if you would like to receive a rate quote for a home loan.