When buying or selling real estate in New Jersey, you can expect to pay closing costs. These fees are typically unavoidable, but savvy buyers and sellers can take steps to mitigate their NJ closing costs.
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Who Pays Closing Costs in NJ?
Both the buyer and seller will typically pay for their own closing costs in NJ. However, it's not uncommon for the buyer or seller to ask the other party to pay for some of their closing costs, depending on the state of the real estate market. For example, in a strong buyer's market, the buyer may ask the seller to cover some of their closing costs. The same is true in a seller's market.
How Much Are Closing Costs in NJ?
Closing costs in NJ can be very expensive, with seller closing costs typically ranging from 6% to 7% of the sale price and buyer closing costs being around 2% to 3% of the purchase price. Of course, some closing costs are negotiable, such as the real estate commission, so sellers can save on closing costs if they go the for-sale-by-owner route. However, this is not recommended, as many studies show that realtors more than pay for themselves through their results.
NJ Seller Closing Costs
NJ Real Estate Agent Commission
The real estate agent commission is the most expensive NJ seller closing cost and is typically 4% to 6%. In most cases, your realtor will ask for a 6% fee which will then be split with the cooperating agent representing the buyer, but they might be willing to discount their fee to 4% or 5% if the buyer is not represented by their own real estate agent.
Local and state real estate transfer fees also account for a large chunk of seller closing costs in NJ. Although transfer fees vary, you can expect to pay around 0.85% of a home's value in transfer taxes. There are numerous exemptions, however. For example, if you're 62 or older or are a veteran, your NJ realty transfer fee might be as low as 0.10%.
If you sell a home in NJ, it's recommended you hire a New Jersey real estate attorney to represent you and help guide you through the process. While attorney fees vary, sellers can typically expect to pay between $1,000 and $1,500 to their attorney. This is a fixed closing cost for sellers, so if you're selling a million-dollar home, it won't account for much on a percentage basis.
Another seller closing cost in NJ is the water well testing and inspection. This usually costs between $400 and $750, depending on the town you're located in. NJ law requires sellers to test the water before they can legally transfer title to the property, so this is an unavoidable closing cost if you're selling a house in NJ.
NJ Sellers can also expect to pay additional closing costs depending on their exact situation. The largest of these is the mortgage payoff for sellers who still have a balance on their mortgage. Other common closing costs for sellers in NJ include HOA fees, Certificate of Occupancy costs, settlement fees, and non-resident withholding taxes for out-of-state investors selling their NJ property.
NJ Buyer Closing Costs
- Mortgage Origination Fees
- Home Appraisal Fee
- Home Inspection Fee
- Title Insurance
- NJ Mansion Tax
- Private Mortgage Insurance
Mortgage Origination Fees
Getting a mortgage can be expensive, and NJ homebuyers should expect to pay between 0.5% to 1.0% in loan origination fees. This is one of the highest NJ buyer closing costs and is unavoidable unless you can pay all cash and avoid getting a mortgage.
Home Appraisal Fee
Another NJ buyer closing cost is the home appraisal fee. If you're financing the home, this will be mandatory as the bank will require an appraisal. You can typically expect to pay around $500 for an appraisal in NJ. If you don't get a mortgage, you can avoid this NJ closing cost, but it's usually best to get an appraisal anyway.
Home Inspection Fee
One of the most important things a buyer should do before closing on a home is to get a home inspection. Typically, a home inspection will cost between $400 and $800, but pricing varies depending on the location and size of the property. If you're paying cash, a home inspection isn't technically required, but you don't want to pass on this as it's a way to protect your investment.
Title insurance is a crucial buyer closing cost in NJ that protects against potential issues with the property's title. It provides financial coverage for both the buyer and the lender in case any undiscovered title problems arise after the purchase. The cost of title insurance is typically based on the property's purchase price and can range from 0.5% to 1% on average. By obtaining title insurance, buyers ensure the security of their ownership rights and facilitate a smooth transfer of property ownership.
NJ Mansion Tax
One of the highest buyer closing costs in NJ is the mansion tax, which is 1% on homes above $1 million. While this NJ buyer closing cost is expensive, you can easily avoid it by not purchasing a home for more than $1 million. However, if you plan on buying a home above that price point, there's no way to get around the mansion tax.
Private Mortgage Insurance
Private mortgage insurance is another NJ buyer closing cost. If you are buying a home with a mortgage and making a down payment that is below 20% of the purchase price, your lender will require you to get PMI. The cost of PMI can vary dramatically as it is based on your credit score. If you have good credit, PMI might cost you 0.25% of your loan balance each year, while if you have bad credit, it might cost you as much as 1.5% of your loan balance per year.
The simplest way to avoid this NJ buyer closing cost is to make a larger down payment. Then, besides saving on PMI premiums, your monthly payment will also be lower.
How Long Does Closing Take in NJ?
After signing the purchase agreement, it typically takes 30 to 60 days to close on a property in NJ. The exact timeline will depend on several factors, including if the buyer needs to secure financing and if a condo or co-op board approval is needed. In most cases, you can expect the closing date to be scheduled for four to eight weeks after signing the contract.
NJ Closing Costs: Bottom Line
Closing costs in NJ are expensive, and it's important to be aware of what you'll have to pay so that you can budget accordingly. With NJ seller closing costs often ending up being more than 6% of the home's value, they can quickly eat into a seller's profit. Similarly, purchasers getting a mortgage will need to be prepared to pay as much as 3% in NJ buyer closing costs, meaning they'll need to save up more before buying a home. However, if closing costs are a problem, they should also look into NJ first-time homebuyer programs that can help cover their NJ closing costs and down payment.
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