The Closing - Buying a Jacksonville Florida area Home
Buying a Jacksonville, FL area home is an exciting time and the more you know about the settlement (closing) process, the more relaxed you will be going through it. On the day of closing, all parties sign the papers and ownership of the seller's property is transferred to the buyer.
The closing is the buyer's last opportunity to make any changes to the transaction. Often times Jacksonville Florida area buyers, especially first time buyers, forget to take closing costs into account when considering the purchase of a home.
Closing costs are fees that are added to the down payment when purchasing a Jacksonville Florida area home and usually range from $500 - $10,000, depending on many variables such as the home's value, an appraisal if needed, a survey, inspections, home owners insurance, flood insurance, property taxes, etc. Are you a cash buyer? Do you need financing? How much financing is needed? Most of the closing costs are incurred for a buyer when obtaining a mortgage.
There are separate fees from the down payment. Some of the fees involved with the closing include items such as a lender fee for processing the loan, title company fee for handling the paperwork and a surveyor fee. Closing costs cannot be neglected, are typically split between buyer and seller, and broken down into two types - &"recurring" and "non-recurring."
- Recurring closing costs are what buyers have to pay ongoing. Money for these costs are often negotiated and placed in a fund by the lender so there is money available to the buyer/homeowner at the end of the year. Recurring costs include items such as: property tax, mortgage insurance, flood and fire insurance, etc.
- Non-recurring closing costs (junk fees) are one-time costs at the time of purchase and include such items as: escrow fees, title Insurance, title Search, attorney fees, notary fees, home inspection, recording fees, appraisal fees, credit Check, document preparation, and Transfer fees, etc.
Most home-sale contracts entitle you, the buyer, to a walk-through inspection of the property 24 hours prior to closing to ensure the property has been vacated and left it in the condition observed during your preview of the home prior to negotiation of the sales contract.
Parties Typically Present at The Closing Table
- You, the buyer (mortgagor)
- Buyers Agent
- The lender (mortgagee)
- Home seller
- Home Seller’s real estate agent
- Title company closing representative
You will want to become familiar with the following closing terms:
Appraisal Fee- A one-time fee to pay an independent appraiser.
- Credit Report Fee - A one-time fee covering the cost of obtaining a current credit report.
- Document Preparation Fee - Depending on the transaction, there may be a separate fee covering the preparation of the final legal papers.
- Homeowners Fee - Some homeowners associations may require an up-front deposit or dues, as well as a fee to transfer their records from seller to buyer.
- Loan Discount Fee - A one-time fee to adjust the yield on the loan to what market conditions demand (often referred to as “points”).
- Loan Origination Fee - A one-time set-up fee charged by the lender for their administrative costs.
- Escrow and Title Charges - The title company will charge fees for the title policies, additional endorsements, recording fees, escrow, and any additional services such as release tracking or special couriers.
- PMI Premium - Depending on the down payment, the buyer may have to pay an additional up-front fee for mortgage insurance.
- Prepaid Interest - Per diem charge that is calculated depending on the time of the month the transaction closes.
- Taxes & Hazard Insurance - Property taxes will be brought current in escrow. Depending on the month the transaction closes, the seller may be required to credit the buyer for property taxes which are not yet due but not yet payable. The buyer will have to pay a year’s hazard insurance premium up-front and may be required to put certain amount for taxes and insurance in a reserve account, which is held by the lender.
Closing Documents You Will Receive
- HUD-1 settlement statement – is a detailed list of all costs related to the sale of the home. The HUD-1 is not an estimate, rather, is a precise record of the settlement costs. Both you as the buyer and the seller sign it. You can download a copy of the HUD-1 form to see all of the items listed on the form.
- Final TILA statement – outlines the final version of the cost of your loan and APR, and takes into account any modifications made to your rate and points between application and closing.
- Mortgage note - states your promise to repay the mortgage. It indicates the amount and terms of the loan, and what the lender can do if you fail to make payments.
- Mortgage or deed of trust secures the note and gives your lender a claim against the home if you fail to live up to the terms of the mortgage note.
- Certificate of occupancy: If you are buying a newly constructed house, you need this legal document to move in.
Jacksonville Florida area Closing Costs
The point in time at which the contract is actually executed and the title to the property is conveyed to the buyer is known as "the closing". It is common for a variety of costs associated with the transaction (above and beyond the price of the property itself) to be incurred by either the buyer or the seller. These costs are typically paid at the closing, and are known as closing costs.
Typical costs you can expect during "the closing"
- Attorney (Lawyer) Fees paid by either or both parties, for the preparation and recording of official documents. The principals and/or lender may each be represented by their own attorney. Typically required by institutional/commercial lenders to ensure documents are prepared correctly.
- Title Service Cost(s) paid by either party according to the contract but by default seller may pay the majority, for title search, title insurance, and possibly other title services. In some cases the attorney may do the title search or the title service and attorney fees may be combined. Required by institutional/commercial lenders and often by the real estate contract.
- Recording Fees paid by either party, charged by a governmental entity for entering an official record of the change of ownership of the property. Required by the government for recording the deed.
- Document or Transaction Stamps or Taxes, paid by either or both parties depending on location (area of jurisdiction), charged by a governmental entity as an excise tax upon the transaction. Required by law.
- Survey Fee for a survey of the lot or land and all structures on it, paid by either party, to confirm lot size and dimensions and check for encroachments. Required by institutional/commercial lenders.
- Brokerage Commission paid by the seller to a Real Estate Broker, to compensate the Broker(s) involved in the sale for their services in marketing the property, finding a buyer, and assisting in the negotiations. Brokerage commissions are usually computed as a percentage of the sale price, and are established in a listing agreement between the seller and the listing broker. The listing broker may offer Buyer Agents a portion of their commission as an incentive to find buyers for the property. Payment is required if real estate brokerage service was used. This is often one of the largest closing costs.
- Mortgage Application Fees paid by the buyer to the lender, to cover the costs of processing their loan application. In some cases, the buyer would pay the lender the application directly and prior to closing, while in other cases the fee is part of the buyer’s closing costs payable at closing.
- Points paid by the buyer to the lender. Points are a form of pre-paid interest, charged by the lender as an alternative to charging a higher rate of interest on the mortgage loan. One point equals one percent of the loan principal, and usually reduces the interest rate by 1/8% (0.125).
- Appraisal Fees usually paid by the buyer (although occasionally by the seller through negotiation), charged by a licensed professional Appraiser. Many lenders will require that an appraisal be performed as a condition of the mortgage loan. The purpose of this appraisal is to verify that the sale price of the property (upon which the underwriting of the loan is based) is equal to or less than the fair market value of the property.
- Inspection Fees usually paid by the buyer (although occasionally by the seller), charged by licensed home, pest, or other inspectors. Some lenders require inspections (such as termite inspection) to verify that the property is in good condition, which is necessary to assure that the property will retain the necessary collateral value to secure the mortgage loan.
- Home Warranties paid by either the buyer or the seller. Warranties are available on resale homes insuring major household systems against repair or replacement for the buyer’s initial year of ownership. Sellers will sometimes offer these warranties as a marketing strategy, or buyers can elect to purchase them at closing.
- Pre-paid Property Insurance paid by the buyer but may be reimbursed by the seller. Lenders will typically require that a mortgaged property be insured at all times throughout the life of the mortgage, and will usually require that the first full year’s property insurance premium be paid in advance by the buyer. If the buyer has not already paid the insurance company directly, this would become another closing cost payable at closing.
- Pro-rata property taxes paid by the seller, the buyer, or both. Most (but not all) jurisdictions assess taxes on real property, which are usually payable at a specified date annually. Since all but a tiny fraction of real estate transactions close on a date other than this one specified annual date, most transactions must include an adjustment to assure that both the seller and the buyer end up paying their share of the annual property tax, proportionate to the percentage of the year that each has ownership of the property. Usually required by institutional/commercial lenders and by the real estate contract.
- Pro-rata Homeowner Association Dues paid by the seller, buyer, or both. If the property is covered by a Homeowner Association (HOA), the HOA will normally be funded by dues assessed against each property owner. Again, since the ownership of the seller and buyer are each fractional in the year of the transaction, there must be an adjustment made so that each owner pays their proportional share. Often required by institutional/commercial lenders and by the real estate contract.
- Pro-rata Interest paid by the buyer but may be reimbursed by the seller. The monthly mortgage payment is calculated and payable on a specified day each month. If the closing does not actually fall on that specified date (which is usually the case), then an adjustment must be made to calculate the interest on the loan for the number of extra days until the first payment is due.
Once all settlement documents have been reviewed and signed by all parties, the house keys are given over to the buyer. Understanding the process of buying a home and comprehending the information and real estate terminology is complicated and takes a professional Realtor® to really help you through it, call Kevin today at (904) 699-1900)
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Kevin Mansel Pepperall is a licensed and bonded real estate agent who provides excellent service to home buyers and home sellers in the Jacksonville Florida area. He is a member of the Northeast Florida Association of Realtors® and the Northeast Florida MLS. If you are looking to relocate to Jacksonville Florida or want to sell or buy a new home or a condo in the Jacksonville area, call Kevin today at (904) 699-1900.