In this article, we’ll take a closer look at real estate closing costs in NJ and let you know exactly who pays the different costs.
Garden State is one of the states with the highest closing cost, so you should be prepared for this process. Whether you want to know what you need to buy a house in NJ or are looking to sell it, our NJ real estate attorney at Curbelo Law can help.
With over 10 years of real estate experience in the state, and with offices in Ridgewood and Newark, we can be your legal support in any real estate matter.
Who Pays Real Estate Closing Costs In NJ In 2022?
Both sellers and buyers are responsible for paying certain closing costs on a property in New Jersey. Generally, the seller pays their attorney fees, transfer fees, and realtor commissions.
Buyers, on the other hand, pay their attorney’s fees and some prepaid costs, such as the real estate title fees for the property or a year of homeowners insurance and property taxes.
In the table below, we will show you who generally pays closing costs in NJ:
|Closing costs||Who pays it?|
|Attorney fees||both parts|
|Title search and insurance||Buyer|
|Mortgage loan rates||Buyer|
|Certificate of occupancy / transfer fees||Seller|
What Are Closing Costs?
Closing costs are fees paid to sell or buy a home in New Jersey.
- For buyers, these costs are always added to the purchase price of the home. Whereas for sellers, these costs are deducted from the proceeds that are earned from the sale.
- Closing costs are usually paid to third parties.
How Much Are Closing Costs On A House In New Jersey?
The exact quantity varies due to several factors such as whether or not you pay for Private Mortgage Insurance (PMI) or whether we are talking about a Homeowners Association (HOA), along with other factors such as the size of the property.
Usually these costs are around 2%, but in popular and more expensive areas like Asbury Park and Englewood Cliffs, closing costs will likely be higher.
Who Pays The Attorney Fees For A House Closing?
Generally, in New Jersey, the seller and buyer hire an attorney to advise them during the property transaction. Each party is responsible for paying their own attorney.
Who Pays The Real Estate Agents’ Fees?
Agent commissions are paid by sellers. However, the buyer indirectly pays the agent’s commissions. An example is:
If the cost of buying a house is $300,000 and the total commission on the sale is 5%, the 2.5% goes to each realtor. This equates to $7,500 for each part.
That is why part of the profits from the property are used to pay the agent.
5 Things To Know About New Jersey House Closing Costs
1. Costs Include Lender And Third Party Fees
2. An Estimate Will Be Received In Advance
When you apply for a home loan, you receive “loan estimate” documentation. This document provides an estimate of the cost you will need to pay on closing day.
A little before the closing date, you should receive a second document called a “closing disclosure” showing the actual amount.
3. Seller Can Contribute To Closing Costs
Depending on the types of mortgage loans used, the seller may contribute toward closing costs.
For example: The Department of Housing and Urban Development allows sellers to only put up 6% of the buyer’s closing cost when using 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 interest rate increase could lower a buyer’s closing costs. Book a consultation with our attorney if you have questions regarding this.
5. Regular Closing Costs And Prepaid Expenses For Buyers Costs 2% To 3% Of The Purchase Price
Since 2017, New Jersey homebuyers’ 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 a loan is closed. This includes property taxes, mortgage interest, and homeowner’s insurance that accrue between the day of closing and the end of the month.
Homeowners insurance and property taxes are collected for deposit in the buyer’s escrow account as a guarantee that they will have enough reserves to pay them when they expire.
In our article on title insurance in New Jersey we cover insurance in detail.
How To Prepare For The Closing Of a 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 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 Save Money On House Closing Costs In New Jersey?
Buyers should ask the lender about the upfront costs associated with the mortgage loan, appraisal fees, origination fees, and whether the loan requires you to pay points to obtain a particular rate.
Sellers, for their part, have the freedom to choose their real estate agent and the rates that are right for their situation. Each broker will set the price for representing their clients.
Both sellers and buyers can choose their own attorney. Both parties choose the attorney with whom they feel most comfortable. At Curbelo Law, you have the extensive experience of the Latina attorney Carolina who has been successfully handling closings in New Jersey for over 10 years.
Can The Buyer Ask The Seller To Pay Closing Costs?
The seller can put up money to cover the buyer’s closing costs as it is allowed under most mortgage programs. However, there may be limits to the amount the seller can contribute.
In real estate, this process is known as a “seller’s concession” and is when the seller puts up money to help buyers pay some (or all) of a house closing costs.
Although the seller’s concession allows you to attract buyers in a slow real estate market, it all depends on the market. For example:
- In a buyer’s market (many houses available but few buyers), the seller might offer a concession. If this is the case, closing cost contributions may be advertised on the yard sign and through other forms of marketing.
- In a seller’s market (many buyers but few available homes), the seller may be less interested in offering concessions.
What Are The Types Of Property Closing Costs In New Jersey?
- Real estate agent commissions. About 5%-6%, and split between the listing agent and the buyer’s agent.
- Mortgage settlement. Includes principal balances, accrued interest, statement fee, and registration fee.
- HOA dues, transfer fees or documents. HOA-owned homes may be subject to HOA fees, document fees, and transfer fees.
- Attorney fees. Generally, attorneys charge between $1,500 and $2,500 in fees, but it all depends on the type of sale and the types of houses in New Jersey.
- State, city and county transfer taxes. It varies depending on the sale price, but is usually 1%. If you’re a disabled veteran or age 62 or older, it could be 0.05%.
- Home inspection. It can range from $300 to $900.
- Inspection of oil tanks. Between $395 to $500.
- Septic inspection (if applicable). Between $750 and $1,000.
- Radon inspection (if applicable). It ranges between $150 and $300.
- Credit report. Between $15 and $40.
- Mortgage Application Fee: Between $300 and $600.
- Appraisal fee. Between $300 and $450.
- Survey fee. $700 to $1,000.
- Title search. Between $250 and $500.
- Wood destroying organism inspection. Between $50 and $250.
- Title insurance. More or less 1% of the total price.
- Deed preparation. $150 approximately.
- Documentation preparation fee. Between $200 and $400.
- Recording fee. Between $50 and $250.
- Settlement fee. $250 approximately.
- Miscellaneous mortgage costs. Between $100 and $600, but varies by lender.
There are certain additional costs and variants depending on your specific case that you should consult with our office, some of these are:
- Certificate of occupancy.
- Certificate of smoke detector or carbon monoxide.
- Home insurance (with 1 year prepayment).
- Property taxes.
- If you are selling a $1 million home, you will need to pay a “mansion tax” which is an additional tax of 1% of the purchase price.
Please note that values shown here are only estimate amounts for purposes of general information regarding the topic on who pays closing costs in NJ. Do not hesitate to contact our office for a precise study of your specific case.
How Do Property Taxes Work When A House Is Sold?
Apart from the transfer fee (around 1%) you will probably have to pay an exit tax which is 8.97% of the net profit if you are considered a non-resident.
The state requires you to prepay income tax if it is not automatically withheld.
You may have to report some of your home gains as a capital gain if you don’t meet the exclusion requirements. For example, using it as a primary residence for at least 2 years.
How Can I Reduce Closing Costs?
In addition to seller contributions, there are other ways to lower closing costs:
- Apply for credit with a lender. This could give you enough money to cover the costs.
- Pay seller interest. This could significantly reduce closing costs if the seller is interested in charging interest.
Closing costs should be planned for prior to deed transfer. In addition, you must be provided with a loan estimate that will state the terms of what you will be required to pay on closing day, followed by a closing disclosure.
Any reduction or exemption you plan to use to reduce closing costs must be submitted on the day of closing.
Get an experienced New Jersey Real Estate Attorney by your side
Real estate transactions are one of the largest investments and therefore can be expensive. Closing costs can be expensive in some cases, but can be lowered by negotiating with the seller or talking to a mortgage company.
Now that you know more about who pays closing costs in NJ you may need additional information and legal support for your specific scenario. At Curbelo Law, our experts in real estate will help you throughout this process. If you are planning to buy a property in New Jersey, but are not sure if you will cover all of your closing costs, it is essential to have a renowned real estate attorney to advise you.