CLOSING COSTS
In Florida, the largest closing cost fees are paid by the seller (title insurance policy and real estate commissions). But there are some costs buyers need to be aware of.
Here is a summary of types of closing costs for a typical residential transaction:
- Title Insurance
- Documentary Stamp Tax on the Deed
- Pest Inspection (optional)
- Septic System Inspection (required for homes over 5 years old with a septic system)
- Professional Home Inspection
- Pro-ration of property taxes for the calendar year (annual taxes are paid in arrears in Florida)
- Pro-ration of dues (HOA fees or similar)
- Miscellaneous other fees: $150 to $300
- Transaction fee: $200
- Documentary stamp on mortgage
- Intangible tax on mortgage
- Recording of Mortgage
- Fees charged by your lender (processing fees, points, credit report, and so on)
- Property boundaries survey (if required by you or your lender)
- Appraisal, if required by you or your lender
- Attorney Fees, if required by you or your lender
Title Insurance - Protects you from claims against your right to own the property in "peaceful enjoyment". The safety of your investment is largely dependent upon the soundness of the title to the property you purchase. An undiscovered title defect in the history of the chain of ownership could encumber the property at a later time, causing the owner to lose all or a portion of the property or by making it impossible to re-sell to a buyer demanding clear title (which most do). Title insurance cannot eliminate title defects that may surface later but it assures you of the best possible legal defense if your title is attacked and reimburses you up to the face amount of the policy if the title, or any part of it, should fail. Title insurance is based on the purchase price of the property. If there is a loan involved there will be a title insurance policy covering the lender for the amount of the borrowed funds, and another policy issued covering the new owner of the property up to the full purchase price. In this case, since only one title search needs to be done, title companies give a simultaneous issue rate which is substantially less than if either policy was purchased separately. In a cash sale, there would be only an owner's policy. Title insurance can be paid by either the buyer or the seller and is often split between the two, as it is usually one of the largest expenses of closing a sale. For example, on the sale of a house priced at $250,000, title insurance, including closing fees, search and exam would probably cost around $1800 for both owner and lender policies. On a cash sale, the owner's policy for the same amount might be around $200 less.
Documentary stamp tax on the deed - Typically, but not necessarily, a seller cost. It is a Florida tax on the sale of real estate and is based on the purchase price. The rate is $.70 per one hundred dollars or fraction thereof. For example, on the $250,000 sale just discussed, the tax would be $1750.
Pest Inspection - This is for Wood Destroying Organisms (called a WDO inspection) and must be done within 30 days of closing a sale on a home. It includes searching for wood rot and fungal decay in addition to termites. If dry rot or fungal decay is found (common in Florida), the wood must be replaced with clean wood in the areas of decay, and a re-inspection done. If found, live termites must be exterminated and a re-inspection done. Many homeowners carry a transferable termite bond protection plan. A WDO inspection can usually be done for around $100, including one re-inspection, although it is occasionally higher.
Septic System Inspection - This is actually a drainfield inspection and is required for all homes over 5 years old that use septic tanks for waste water disposal. It costs about $200. If the tank must be pumped, there is an additional charge, but this is not common on homes less than 10 years old.
Home Inspection - This is paid for by the buyer. It allows the buyer to have a qualified home inspector thoroughly check all aspects of a home he or she has contracted to purchase, and often reveals problems requiring attention that may not have been apparent. I highly recommend home inspections, particularly for resale homes. Inspections on small homes usually start at around $250 and go up from there.
Overnight delivery charges - These are fees charged by a title company to send out closing packages overnight for parties who cannot appear in person for closing or to overnight a loan pay-off resulting from a closing. Closing documents are dated and time is of the essence. Loan interest, property tax pro-rations and homeowner association dues pro-rations are based on the closing date. Overnight delivery charges are usually paid for by the party served by them, and can cost as little as $40 to more than $100. $60-80 is common, but packages sent out of the country are usually higher.
Escrow Items - These are sums of money held in an escrow account by a lender to pay for property taxes and insurance in the event a borrower is late on payments or defaults on the loan. These costs belong to the buyer, as does pre-paid interest. Pre-paid interest is the amount of money charged per day from the time of closing until the beginning of the first full payment period. Although pre-paid interest is paid in advance, regularly monthly payments pay interest in arrears, so a closing on July 15 would charge the borrower 17 days of interest at closing, with the first full payment due September 1.
Potential Additional Fees if Taking Out a Mortgage
Documentary stamp tax on the mortgage - A Florida tax on new and assumed mortgages, based on the amount. The rate is $.35 per one hundred dollars, or fraction thereof. Let's assume in the example above that the buyer got a conventional loan and put down 20% as a down payment. The documentary stamp tax on the loan of $200,000 would be $700.
Intangible tax on the note - This is a tax charged on all new loans. The rate is $.20 per one hundred dollars. The $200,000 loan would also be taxed an intangible tax of $400.
Recording fees - Recording a deed costs about $25. Recording a mortgage can be $275 or more.
Lender fees - these can vary widely, depending on the lender. Some lenders offer a lower interest rate but charge more up-front fees at closing. There are usually options to pay an origination fee (usually 1% of the loan) or points (also 1% of the loan, per point) to lower the interest rate but with today's low interest rates, it is often not as appealing to do so. Typical lender fees include an underwriting fee, tax service fee and application fee, although there may be others. Excluding any origination fees or points, these charges can cost anywhere from about four to six hundred dollars, which is typical, to well over a thousand. Don't be afraid to ask questions about these fees before you agree to the loan. After you have made application, your loan officer will provide you with a good faith estimate of your closing costs.
Survey - This is nearly always required if there is a loan and is a good idea to do anyway. A current survey will show any easements or encroachments on the property you are buying, such as neighboring fences, drainage easements, utility easements, etc. It will also reveal if the property you are purchasing has encroachments to setback lines, has a fence on the neighbor's land or something similar. Typical surveys for lot and block subdivisions cost between $375-450, although large, complex or waterfront properties are usually considerably more.
Credit report - About $50 or $60, this fee is paid for by the buyer at the time of loan application.
Appraisal - This is required by the lender to determine that the money they are lending is being used for a property that is worth what the buyer is paying for it. An appraisal usually costs at least $400. Large or complex properties are often higher.The above estimates are a guideline. A week or a few days before closing, the title company provides a settlement statement (called a HUD) that states all fees, to whom they are paid, and the final amount due at closing.