Closing Costs: What to Expect When Buying a Home in Tampa
Question: I’m a first-time home buyer and I am not clear on all the costs involved in purchasing a home in Tampa. I have enough money for a down payment, but what other costs will I see? How can I minimize the required costs?
Answer: The primary costs are listed below, along with some ideas on how to reduce the impact. We recommend contacting a local Tampa lender to obtain a pre-qualification letter and a detail “Good Faith Estimate” of closing costs. Make sure the lender has info about taxes, CDDs (Community Development District) and HOA fees (Home Owner Association) when determining your monthly payment.
- Escrow Deposit (a.k.a. Earnest Money)
In order to have a valid contract on a home purchase, Florida law requires that you put some money into escrow. When you make the offer, or upon acceptance, you would write a check to an attorney, title agency, or real estate company who hold the funds on your behalf. At closing, the funds will be credited back to you. The amount of the escrow deposit is negotiable, though 1%-3% of purchase price is customary for “normal” transactions. For “short sale” transactions, we usually see $1000 for escrow. For bank owned homes (REOs), the banks will dictate the escrow amount (usually 1%-2%). - Expenses Before Closing
The home inspector will expect to be paid when the inspection is performed, so you can budget $300-$600 depending upon the size of the home. Most lenders will charge an application or appraisal fee of $400-$800 in order to start work on a loan. - Down Payment
A down payment is the difference between the price of the home and the amount of the mortgage. If you purchase a $200,000 home with a $180,000 mortgage, then you would bring the $20,000 down payment to closing (10% down, 90% financing). USDA and VA loans allow 100% financing (zero down), while FHA loans require a down payment of at least 3.5%. Lenders occasionally offer 90-95% financing on conventional loans, though the trend is toward requiring a 20% down payment for conventional loans. Lenders will require proof of down payment funds from your bank account, or a letter from a family member offering to give you funds. There are also some city, county or state down-payment assistance programs available to help first-time home buyers (i.e., people who have not owned a home within 3 years). - Expenses at Closing
There are several customary charges a buyer can expect when purchasing a home. While costs very from market-to-market, in the Tampa Bay area a buyer can expect to pay for costs related to the loan such as: state documentary stamps on the note, state intangible tax on the note, lender’s title policy, and any lender’s fees / points. Other buyer costs include pest inspection, survey, credit report, tax service fee, flood certification, HOA fees, recording fees, underwriting fees, processing fees, closing fees, mortgage insurance, etc. We usually estimate 2%-3% of the purchase price for these costs. In the Tampa real estate market, sellers normally pay for the owner’s title policy and doc stamps on the deed. Again, the best bet is to ask your lender for a Good Faith Estimate well in advance. - Pre-paid Items at Closing
In addition to the down payment and closing costs, many lenders require the buyer to pre-pay certain expenses at closing. As a condition for obtaining the loan, many lenders will require buyers to pre-pay 3 to 4 months of property taxes, 12 to 15 months of home owner’s insurance, and a year of CDD fees (if the home is in a Community Development District). - Minimizing Costs
All of these costs add up. One strategy is to to ask the seller to incorporate some of the closing costs into the sale price. For example, on a 200,000 home, you might ask the seller to contribute up to 6% purchase price ($12,000) toward your closing costs and pre-paids. Savvy sellers know to focus on the bottom line rather than the closing costs. Most lenders will permit a 3%-6% seller contribution. Contact Team Bohannon today for other innovative ideas that we do not advertise.
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