The decision to purchase real estate in Florida is a serious commitment. You need to take into account many details before signing the purchase and sale contract, be it a residence for yourself and your family, a rental property, or a restful vacation home.
One of the key factors deserving of the buyer’s particular attention is the expense of finalising a property transaction. In most cases, these costs are split between the buyer and the seller. Let us delve further into which expenses are borne by the former and which would be expected of the latter.
- The Costs of Closing on Real Estate in Florida
- The Sellers’ Closing Costs
- Buyers’ Closing Costs
- Who Pays the Closing Costs on New Developments in Florida?
Closing the deal is the final stage of the real estate purchase and sale process. According to the official statistics, in 2021, the average closing cost in Florida was $8,551 after tax and $4,484 before tax, but the exact amount depends on the property’s value and location.
As already mentioned above, the costs of closing on a property in Florida are split between the seller and the buyer. The former usually pays the following:
- mortgage payoffs;
- property tax;
- excise tax;
- transfer tax;
- title examination fee;
- title insurance (insurance on forfeiture of the title);
- HOA Estoppel (letter on fees due from a homeowners association).
The buyer’s closing costs may include:
- mortgage origination fee;
- property appraisal and survey fee;
- home inspection fee;
- credit reporting;
- recording fees.
Although the owner profits from selling their property, they still have to incur certain expenses. In Florida, the seller’s costs of closing the deal often amount to 5 – 10% of the property value. Let us delve further into the specifics of the closing costs.
If the property owner still has any mortgage payments to make, they would have to pay the balance in full before closing the deal. If a prepayment penalty is imposed on the debtor, its amount would be added to the closing costs.
The seller is responsible for payment of the property tax, the amount of which depends on the ownership period. Homeowners in Florida pay this tax one year in advance, so sellers must pay all their taxes up to the day of closing the deal.
For instance, sellers who are planning to close on their property on June 30 must pay their outstanding property taxes from January 1 through June 30. This amount is also included in the closing costs.
An important step in the title transfer from the seller to the buyer is confirming the absence of any outstanding liens, mortgages, court judgments, or any other claims against the property. The title is examined before the closure to make sure these are all settled.
The US law does not require hiring a specialised firm to conduct this examination, but about 80% of persons closing the deal in Florida use the professional services of title companies.
Excise tax is a Florida state tax paid by the seller upon ownership transfer. It is also called the documentary stamp tax and is equal to a certain percentage of the property value. This kind of tax can be charged on mortgages, liens, or other evidence of indebtedness filed or recorded within the state.
The excise tax rate in Florida is $0.70 per $100, which is paid for real estate across all counties except Miami-Dade, where the documentary stamp is $0.60 per $100 for single-family houses plus an additional $0.45 per $100 for other property types.
Property owners pay for title insurance to protect themselves from any future claims or defects that could be identified after closing the deal. The title insurance cost depends on the value of the residence, the mortgage amount, and the previous owner’s title insurance.
The amount is set by the Florida Government and on average, ranges from $500 to $1,500.
An HOA Estoppel is a certified letter that informs the current owner of the amount they owe to the homeowners association. The debt may include the association’s current fees, delinquent fees, etc. HOA Estoppel is designed to protect new owners from undisclosed financial liabilities.
Transfer taxes are duties charged by cities, counties, and states when a property title is transferred from one person to another. The property value determines the amount payable.
Aside from the actual cost of the property, buyers also have to cover a series of associated expenses, many of which are connected with the need to secure a loan to purchase a home. Even if you are not planning to take a bank loan, you will still face a long list of expenses.
This is the upfront fee charged by the bank for considering a loan application. In the USA, it can range from 0.5% to 1% of the total mortgage amount.
The lender will demand an appraisal of the real estate, which guarantees that the amount requested by the buyer matches the objective property value. In Florida, an appraisal costs approximately $500.
A property survey is conducted to establish the sizes and borders of the property being sold, which may reveal that the residence is greater or smaller than claimed by the seller. The average survey cost in Florida is $200 – $800.
Real estate inspections are aimed at making sure that there are no problems unidentified or undisclosed by the seller. If professionals find a defect, the buyer can agree with the owner on repairs, a discount, or a contract dissolution.
In Florida, such an inspection usually costs from $279 to $399.
To begin processing a home loan, a bank representative must prepare a credit report. This is a standard bank document that contains the buyer’s credit history. A credit report usually costs from $175 to $200, but the amount will be determined by the bank.
The recording fees include charges levied by Florida authorities to enter the owner’s change of information in the official databases. The specified amount of these fees is dependent on the county in which the transaction takes place.
The closing costs can be significantly higher in the case of purchasing a home in a new development compared to transactions with existing housing. The main reason for this is that the expenses vary depending on the mortgage rates of new buildings. These costs can also change with the terms of the bank account where the payment for the off-plan property arrives. In Florida, the costs of closing on new residential projects are usually borne by the seller.