Making the decision to buy a home is an incredibly exciting endeavor, but for first-timers who’ve never been through the process before, it can also be fraught with stress and confusion.

“What steps do I need to take to prequalify for a loan?”

“Should I get a fixed-rate or adjustable-rate mortgage?”

“How much money should I put down?”

“Are there any other costs and expenses that I should be aware of?”

Many costs associated with homeownership are predictable, like insurance and monthly mortgage payments, but there are also ones that first-time buyers often fail to consider.

Closing costs are arguably one of the most misunderstood aspects of the home-buying process –– and rightfully so. Many people forget to factor them into their calculations when deciding how much house they can afford and wind up shelling out more than originally planned.

Fortunately, we’re here to break it down for you so you won’t be faced with any unexpected financial obstacles when you close on your new home. In this comprehensive guide, you’ll learn what’s included in closing costs, how much you can expect to pay in total, and strategies for negotiating and lowering your fees.

What are closing costs?

Closing costs, also referred to as settlement fees, are the expenses that buyers and sellers normally incur to complete a real estate transaction. They are the various fees paid in addition to the down payment to finalize a mortgage and occur when the title of the property is transferred from the seller to the buyer.

In general, settlement fees range anywhere from two to five percent of the total loan amount and are paid whether you’re purchasing a new home or refinancing your current mortgage. Real estate closing fees vary depending on your state, loan type, and mortgage lender.

Closing costs encompass a variety of fees and expenses, such as:

Loan Origination –– Fees charged by the bank for the creation of a loan, which may include application processing, underwriting, and funding the loan, and other administrative services
Credit Report –– Covers the cost to obtain a copy of credit reports and scores
Title Search –– Verifies that the title of the home has no tax liens and is owned by the person who is selling it
Title Insurance Policy –– Not to be confused with property insurance, it can provide protection if someone later sues and says they have a claim against the home
Home Appraisal –– Covers a professional home value estimator’s cost to help confirm the fair market value of a home
Home Inspection –– Different from an appraisal, this covers the associated costs for a third-party inspector to evaluate the condition of the home and its major components
Property Insurance –– Required by the lender to ensure the property has adequate coverage (can be paid up-front and or at closing in addition to settlement fees)
Mortgage Points or Discount Points –– Fees paid directly to the lender at closing in exchange for a reduced interest rate (sometimes called “buying down the rate”)
Property Taxes –– Fees the buyer pays to state, county, and various local authorities to help fund local schools, road upkeep, fire protection services, water/sewage maintenance, and more

Specific closing costs in Florida depend on the loan type, where the home resides, the amount of the down payment, and how much is borrowed. Make sure to ask your mortgage lender what the closing costs entail.

How much are closing costs in Florida?

Closing costs are divided between the buyer and seller, with the buyer typically paying the bulk of the taxes and fees. In some cases, a buyer will negotiate with a seller to help cover closing costs, which are called seller concessions.

Closing costs can increase or decrease depending on the home purchase price. In Florida, the average closing costs come to approximately 1.98% of the home purchase price. So, if you take out a mortgage worth $200,000 to purchase a home, you’ll pay roughly $3,900 in closing costs.

What are the buyer’s closing costs in Florida?

If you’re gearing up to buy a home, here are some of the associated costs you can expect to pay:

Home Appraisal

Before lending you hundreds of thousands of dollars to purchase a home, your lender will ask you to pay for a home appraisal to confirm that their investment is secured. The average cost of a home appraisal by a certified appraisal professional in Florida will range anywhere between $500-$700.

Credit Report

There are two times a lender will pull your credit score: in the initial stages when you’re getting pre-approved for a loan and just before closing to verify that your credit score is still the same. It typically costs between $30-$50 to pull your credit reports from the three main reporting bureaus. Your credit score plays a big role in determining the interest rate you’ll get on your loan. If you have poor credit, a lender will often charge more closing costs because of the increased risk of the mortgage.

Home Inspection

In addition to a home appraisal fee, most lenders will require you to pay for an inspection fee to confirm that the home you’re about to purchase is structurally sound and in livable condition. The average cost of a home inspection in Florida is $302, with a typical range of $254-$374, but the fee will depend on the size of the home and where it is located.

Recording Fees

Recording fees are paid at closing when you sign your final documents. In Florida, you’ll pay a one-time fee to your local county to record your mortgage documents. The national average for recording fees is $125, but it could be lower or higher depending on the county you reside in and the length of the document.

Transfer Taxes

Just like the name sounds, this is a tax that is charged when the ownership of a property is transferred from the seller to the buyer. It’s generally equal to a percentage of either the sale price or appraised value of the property. The tax is set by the state, county, and/or city, so you’ll need to consult with your local county recorder’s office to determine the rate.

What are the seller’s closing costs in Florida?

Some closing costs are the responsibility of the seller. If you’re planning on selling your home in Florida, here are some of the fees you will be expected to cover:

Real Estate Agent Commission

If you listed your property with a real estate agent, you’re in charge of paying the commission associated with the sale. Let’s say your home sells for $375,000 and the contract with your realtor specifies a 5% commission. This means the commission is $18,750, which reduces your net proceeds to $356,250.

Mortgage Settlement Fee

Though Florida doesn’t require you to have a real estate lawyer present during closing, you’ll still be required to pay a settlement fee to the title company or escrow holder for their services on closing day. Since practices and pricing varies significantly, a general rule of thumb is to estimate settlement costs to be about 3% of the price of your home.

Title Search

This part of the home selling process confirms a property’s legal ownership and verifies that there are no outstanding liens against the home. A lender will require this before money and documents are transferred from the seller to the buyer. In Florida, the title search fee is typically the seller’s responsibility and costs between $150 and $1500. The only time the borrower will pay this fee is when refinancing a property they currently own.

Title Insurance Policy

In most cases, it’s customary for the seller to pay the costs of the policy issued to the new homeowner. However, if the property is located in Miami-Dade County, Sarasota County, Collier County, or Broward County, the buyer pays for title insurance and chooses the title company. The main purpose of title insurance is to protect the interests of the buyer from ownership claims of the home and other unforeseen issues that pop up during the home buying process.

Outstanding Amounts Owed

The outstanding balance of all liens on your property must be paid in full by the time you close on your home. This includes everything from HOA dues (if applicable) to property taxes and utility bills. All of these extraneous costs will be prorated to your closing date.

Property Taxes

In the state of Florida, property taxes are sent at the end of a calendar year and are paid in arrears (i.e., one year behind the current year). This means that though the seller is responsible for paying property taxes for every day they owned their home, closing costs will typically include a prorated property tax credit to the buyer.

How can I calculate my closing costs?

So, how much will you pay in closing costs when selling your home, buying property, or refinancing your mortgage in Florida?

While calculating closing costs will vary depending on where you live in the state, on average, you can expect to pay roughly 2% of the purchase price of the property. We suggest using a closing cost calculator to get a ballpark estimate of how much you’ll have to pay. To determine your total cost of closing in Florida, you’ll need these three key pieces of information handy:

The actual price of the home or how much you expect to spend on your home
Your estimated down payment
The interest rate of your mortgage

*Tip: The law requires lenders to provide a Loan Estimate to both the buyer and seller that provides an itemized list of closing costs on a property.

Can I avoid paying closing costs?

While there is no way to eliminate all taxes and fees associated with closing costs, there are ways to drastically cut down on your out of pocket expenses.

If you’re a seller in Florida, you typically don’t have to come up with a ton of extra cash, as closing costs usually come out of the proceeds received from the sale. If you’re on the buying side, however, you can (and should!) negotiate your closing costs. Negotiating closing costs even a little bit could award you with some extra cash to buy a new washer and dryer or even repaint the interior of your home. Here are several effective strategies that could potentially help reduce your closing costs:

Compare Loan Estimate forms from multiple lenders

A Loan Estimate is a three-page form that you receive within three business days of completing your mortgage application. It details important terms of your loan, including the loan term, the type of interest rate (i.e., fixed or variable), whether it includes a prepayment penalty or a balloon payment, the projected monthly mortgage payment, the estimated closing costs, and the types of third-party services you can and cannot legally shop around for (e.g., home appraisal fee, pest inspections, etc.). By getting Loan Estimate forms from multiple lenders in Florida, you can compare to see which lender is offering you the best deal.

Shop around for quality services

As mentioned, your Loan Estimate includes important details about different services that you are free to shop. Since these fees are paid to outside third-party vendors, you’re free to compare prices for the services offered. For example, you might want to compare pricing for pest inspectors, survey fees, or title services.

Close at the end of the month

When you close near or at the end of the month, you’ll save on your overall closing costs because there are fewer days left for interest to accrue. For example, if you close on the 29th of the month, you would only have to pay interest for one or two days whereas you’d have to pay interest for the entire month if you were to close on the 1st or 2nd. Ask a lender to run this scenario for you to determine how much money you could potentially save.

Utilize grants and financial assistance programs

If you need help buying your first home, the Florida Housing Finance Corporation offers several down payment and closing cost assistance programs. These programs are available to first-time homebuyers, active military, veterans, and other individuals and families purchasing in federally designated “targeted areas” (i.e., a neighborhood, block, or street where 70 percent or more of households earn 80 percent or less of the statewide median income).

Whether you’re a first-time homebuyer in Florida or you’re looking to reduce your interest rate on your current mortgage, it’s important to consult with an experienced broker who can provide guidance. The Streamline Team in Orlando, Florida has been helping thousands of buyers and sellers navigate the complex real estate landscape for more than eighteen years.

If you’re buying or refinancing in Florida, give us a call at at 407-310-7804 or email us and we can assist you.