Closing costs in NJ are often a concern for those looking to buy a home in New Jersey. This is because they involve an outlay of money that generally must be paid in advance.
As if that were not enough, there is great confusion regarding this topic. However, our experienced NJ real estate attorney at Curbelo Law can advise all those interested in real estate transactions.
Whether you are buying or selling a house in New Jersey, Curbelo Law can help you. With more than 10 years of real estate experience, from our office in Ridgewood, NJ, we can be your legal support. Call us today.
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Table of Contents
What Are House Closing Costs In NJ?
Closing costs are those expenses associated with the transfer of a home from the seller to the buyer. This is because in real estate transactions, the process goes beyond the buyer paying and the seller handing over the keys.
For buyers, these costs are added to the purchase price, while for sellers they are deducted from the income earned. Furthermore, these payments usually go to third parties.
Who Pays Closing Costs When Buying A Home In NJ In 2024?
Both sellers and buyers are responsible for paying certain closing costs on a property in New Jersey. Generally, the seller pays their attorney’s fees, transfer fees and real estate agent commissions.
To better understand this, here are some details to keep in mind about who pays what at a closing:
Closing Costs For Sellers
1# Transfer Fees
Sellers are required to pay a New Jersey realty transfer fee. This tax is equivalent to 1% of the sale price of the home. Therefore, if a house is worth $500,000, this fee will be $5,000.
2# Real Estate Agent Fees
Real estate agent fees make up the majority of a seller’s closing costs. Typically, these costs are between 5% and 6% of the sale price of the home. So, if a house costs $600,000, the cost of the professional would be:
- $30,000 (i.e. 5%), or
- $36,000 (i.e. 6%).
The same applies if you obtain the services of a real estate attorney. In our case you have a great advantage in the sense that we work with flat rates. Contact us to find out the costs for the services of our renowned attorney Carolina T. Curbelo .
3# Property Taxes And HOA Fees
The seller of a property must cover taxes and HOA fees until the sale closes. These costs are typically distributed at closing.
4# Bank Transfer Fees
Upon paying off the remaining balance of the mortgage, a transfer will be made to the seller’s lender. Additionally, there may be an additional bank transfer fee.
5# Seller’s Concessions
If concessions have been agreed to with the seller, their cost will be deducted from the sales price of the home at closing. For example, payment for heating, ventilation and air conditioning (HVAC) system repairs.
Closing Costs For Buyers
1# Appraisal And Inspection Costs
Lenders require a home appraisal to make sure the loan does not exceed the value of the home. Although home inspections in New Jersey are not required, they are recommended. This will be to understand the current state of the house and any potential problems.
2# Fees Related To Loans
Most lenders charge a fee when you apply for a mortgage. Additionally, they may require the following fees:
- Credit check,
- Loan origination, and
3# Mortgage Points
If mortgage discount points are acquired to reduce the interest rate, the buyer must pay them at the time of closing. Each point typically decreases the mortgage rate by 0.25% and costs 1% of the loan amount.
4# Fees Related To The Title
A New Jersey property title search verifies liens and claims on the property.
Likewise, title insurance in NJ protects against problems with the property deed. That said, in New Jersey, the buyer is responsible for these costs, unlike some states where the seller is the one paying.
Some lenders require upfront payments regarding property taxes. Additionally, these funds are deposited and distributed as needed.
6# Transfer Taxes
Generally, the buyer pays a mansion tax in New Jersey if the property is worth more than $1 million. You may also have to pay an additional 1% tax.
5 Things To Know About Home Closing Costs In NJ
1. Costs Include Lender And Third Party Fees
Most closing costs don’t just come from the lender. For buyers these costs include mortgage fees, real estate title searches, attorney fees and others.
2. Estimate Will Be Received In Advance
When you apply for a mortgage loan, you receive “loan estimate” documentation. This document provides an estimate of the cost you will have to pay on the day of closing.
Shortly before the closing date, you should receive a second document called a “closing disclosure.” This document shows the actual amount.
3. The Seller Can Contribute To Closing Costs
Depending on the types of mortgage loans used, the seller may contribute to cover closing costs.
For example: The Department of Housing and Urban Development allows sellers to contribute a percentage toward certain closing costs. However, it is usually 6% and will be when the buyer uses an FHA loan. Other mortgages may limit the seller to a lower amount, such as 3%.
4. A Lender Credit Could Reduce Costs
In some cases, a small increase in the interest rate could reduce the buyer’s closing costs. Please contact our attorney in private consultation if you have questions regarding this.
5. Regular Closing Costs And Prepaid Buyer Expenses Are 2% To 3% Of The Purchase Price
As of 2017, New Jersey home buyers’ closing costs typically average between 2% and 3% of the purchase price. However, they may be outside this range in certain cases.
On the other hand, prepaid expenses are not a fee, they are costs associated with housing that are paid before closing a loan. This includes:
- Property taxes,
- Mortgage interest, and
- Homeowner’s insurance that accrues between the day of closing and the end of the month.
Homeowner’s insurance and property taxes are collected and deposited into the buyer’s account. This will ensure that you will have enough reserves to pay them when they expire.
You can learn more about homeowner’s insurance vs landlord insurance in our post.
What Is The Closing Cost Percentage For A House?
Closing costs can vary widely, depending on the specific situations of any real estate transaction. Although they generally tend to be between 2% and 3%, in other cases they can be as high as 6%. In the case of sellers, this percentage can reach up to approximately 8%.
How Are Closing Costs Calculated For The Seller In New Jersey?
Typically, closing costs to the seller are determined as a percentage of the amount of several factors. Such as attorney fees, transfer taxes, title insurance and others.
According to Zillow, these costs for sellers are higher than those for buyers. In fact, Zillow states that these costs can range between 8% and 10% of the sales price.
Often, these seller costs are deducted from the total proceeds from the sale at the time of closing. Therefore, paying anything on closing day is rarely warranted.
How Much Are Closing Costs In New Jersey In 2024?
On average, closing costs in New Jersey are typically 1.7% of the property’s sales price. This is lower than rates in other states, such as New York or Pennsylvania.
Likewise, the New Jersey Association of Realtors (NJAR) revealed that the median price of a single-family home was about $515,000.
However, these costs can vary significantly between the various regions of New Jersey. For example, Redfin reveals that the median price in Montclair is more than $619,000. On the other hand, the state capital of Trenton has a median of $220,000.
It should be noted that your lender will provide you with closing information three days before the settlement date. This is in accordance with the Real Estate Settlement Procedures Act (RESPA). It details the amount to be paid.
How Much Is A Transfer Tax In New Jersey?
Most sellers typically pay around 0.85% of the sale price of their home in transfer tax. However, this percentage may vary depending on the total value of the property. Therefore, at a higher value, there is the possibility of a higher transfer tax.
New Jersey sets specific fees for every $500 of a property’s value. So, if a home costs $500,000, the rate would be $4.80 for every $500 of transaction value. This implies that the transfer tax could be around $4,800.
It is crucial that sellers are aware of possible exemptions that may be available to them. For example, those related to property transfers between spouses or between parents and children.
Transfer Tax Rates In New Jersey
- $0 to $150,000: $2.90 tax per $500,
- $150,000 to $200,000: $4.25 per $500,
- $200,000 to $550,000: $4.80 per $500,
- $550,000 to $850,000: $5.30 per $500,
- $850,000 to $1,000,000: $5.80 per $500,
- $1,000,000 or more: $6.05 per $500.
House Closing Costs In New Jersey By Mortgage Loan Type
Buyers may be required to cover additional closing costs when opting for a specific type of loan. These costs may include:
FHA Mortgage Insurance Premiums
FHA loans require borrowers to purchase mortgage insurance premiums (MIP). This will be in case the initial payment is less than 20%. In addition, an FHA MIP is paid, the rates of which vary depending on:
- The loan-to-value (LTV) ratio, and
- The duration of the mortgage.
USDA Guarantee Fee
Buyers indirectly cover a non-refundable escrow fee for mortgage lenders on closing costs. For USDA, the guarantee fee is 1% of the loan amount. In addition, payment of an annual fee of 0.35% of the mortgage is required.
Private Mortgage Insurance For Conventional Mortgages
Private mortgage insurance (PMI) protects the lender in the event of a default on a mortgage payment. Therefore, it is useful when the initial payment is less than 20% of the purchase value.
PMI rates often vary depending on the monthly payment and the amount of the down payment. Although, they are usually between 0.5% and 1% of the loan.
How To Prepare For The Closing Of My House In New Jersey?
- Review closing documents ahead of time. Some documents that you may need to sign at closing are:
- Property deed. Allows legal transfer of property title. You should check all your details carefully.
- Closing Disclosure or HUD-1. If you buy the house with a mortgage, you’ll get the closing disclosure. If the transaction is in cash, you may receive the HUD-1.
- Certificate of title. It allows you to declare that you have the right to sell the property.
- Closing cost statement. Summarize all the expenses of the transaction.
- Two forms of identification. A notary will likely ask you to confirm who you say you are. Therefore, carry supporting identification, such as a valid driver’s license and passport.
- Ask questions. If you are a first-time homebuyer or you are selling a property for the first time, schedule an appointment with the closing agent before your closing date. You can get answers to any questions you may have.
How To Offset Closing Costs On A Home In New Jersey?
Although closing costs can be challenging, there are strategies to reduce them. For example, a buyer may benefit from commission refunds and negotiate with the seller to share such costs.
Likewise, the seller can interview brokers and negotiate rates that can be key in this matter.
Either way, ignoring these strategies can lead to homebuyer’s remorse. To avoid this, we recommend doing your research and considering these options is essential for a more profitable transaction. You can also contact us, we will help you from start to finish.
How Much Do You Pay In Taxes For A House In New Jersey?
The property tax in New Jersey is a local tax determined by the value of your home. Therefore, it is evaluated annually by appraisers appointed to each municipality. Currently, the average rate of this tax is equivalent to 2.23% of the assessed value of your home, standing out as the highest rate nationwide.
How To Avoid Closing Costs On A House In NJ?
Closing costs on a home in the Garden State cannot be avoided. However, here are some tips to reduce them when buying a home:
- Ask the seller for concessions.
- Do your research and choose lenders with lower costs.
- Look for government assistance programs.
Making a real estate transaction is one of the most significant and expensive investments in life. Therefore, it is crucial to have the help of a New Jersey real estate attorney.
How Can I Reduce Closing Costs On A Home In NJ?
To reduce closing costs when purchasing a home, we recommend considering these key strategies:
- Look for the best mortgage offer. Compare lenders to get the lowest interest rate.
- Negotiate with the seller. Explore the possibility of the seller sharing some closing costs.
- Buy discount points. Pay fees up front to lower your long-term interest rate.
- Opt for mortgages with no closing costs. Some lenders cover these costs in exchange for a slightly higher interest rate.
- Carefully review the loan estimate. Make sure you understand and dispute any excessive fees.
- Use local government assistance programs. Find out if you qualify for programs that help with such costs. For example, those programs focused on helping first-time homebuyers in New Jersey.
Frequently Asked Questions About House Closing Costs In NJ
Generally, real estate agent or attorney fees are not included in closing costs in New Jersey.
If you can’t pay closing costs, you may not be able to close the deal on the property. Either way, your best bet is to see if the seller can help you cover them. Likewise, the lender can also transfer some of these costs to the mortgage.
Generally speaking, closing costs when buying or selling a home are not tax deductible. Despite this, a buyer can deduct some points from their mortgage and certain prepaid taxes in the year of purchase.
In our section of property tax appeal attorneys in NJ you have extensive information on tax reductions on the sale of homes.
We Help You Make your Home Closing process in NJ a smooth one
Real estate transactions are one of the largest investments and therefore can be expensive. Closing costs in NJ tend to be high in some cases, but they can be reduced by negotiating with the seller or speaking with a mortgage company.
At Curbelo Law, we help our clients carefully review and analyze their closing costs. In addition, we also guide them through the process so that they do not unnecessarily take the closing costs early (if the transaction is canceled). Therefore, hiring our service often saves them money.
It is important to avoid situations in which the seller ends up assuming costs that should correspond to the buyer (or vice versa).
In our service, we make sure to prevent these types of scenarios, guaranteeing a fair and adequate distribution of responsibilities and amounts between both parties. In this way, we offer peace of mind to the client by avoiding possible misunderstandings and ensuring a transparent and equitable process.
FULL LEGAL REPRESENTATION AND COUNSELING
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