Investing in a new home is a thrilling and significant decision, whether you’re a first-time buyer or not. But before you get caught up in decorating and landscaping, it’s essential to budget for closing costs.
Closing costs encompass the fees and expenses involved in finalizing a real estate transaction and transferring ownership of a property from the seller to the buyer. If you’re feeling uncertain or overwhelmed, fear not. This Redfin blog post will guide you on budgeting for closing costs, detailing how much they are in Massachusetts, who covers them, and the specific costs you can anticipate as a buyer or seller.
What are the average closing costs in Massachusetts?
Before you can unlock the doors to your new home, you must allocate funds for closing costs. Typically, closing costs in Massachusetts fall within the range of 2% to 5% of the home’s purchase price. It’s important to note that this is an estimated range, and the final amount will be influenced by various factors, such as the buyer’s loan program or negotiations with the seller.
For instance, if you’re purchasing a home in Boston with a median sale price of $797,000, your closing costs could total between $15,940 and $39,850. Conversely, buying a property in Milton, where the median sale price is $955,000, may result in closing costs ranging from $19,100 to $47,750.
Who is responsible for covering closing costs in Massachusetts?
In most cases, both the buyer and the seller share the burden of paying closing costs in Massachusetts. However, the specific amount each party is required to pay can vary. It’s worth noting that buyers typically settle their closing costs upfront, while sellers’ expenses are often deducted from the proceeds of the home sale.
Buyer’s closing costs in Massachusetts
Buyers in Massachusetts generally face closing costs ranging from 2% to 5%. Typically, earnest money, usually 1% to 3% of the home price, is paid upon mutual acceptance of the home purchase. This deposit is then subtracted from the total closing costs, reducing the amount due at closing. Here are some common closing costs that buyers are expected to cover:
- Appraisal fee: Home appraisals, which typically cost between $300 and $500, are usually paid separately at the time of service. However, if not paid upfront, this fee will be due at closing.
- Inspection fee: Home inspections, ranging from $300 to $500, can vary depending on local rates and property characteristics. If the inspection fee wasn’t paid at the time of service, it will need to be settled at closing.
- Loan origination fee: Lenders often charge a fee for setting up your loan. It’s advisable to inquire with your lender about this fee and whether it’s negotiable.
- Loan processing fee: In addition to the origination fee, lenders may impose a fee for processing your loan, covering underwriting and related services. Discuss this fee with your lender to understand its purpose and potential for negotiation.
- Loan discount points: If you opt to purchase discount points to lower your interest rate, a one-time fee will be due at closing. These points can reduce your rate by 0.25% to 0.5%, but consider your long-term homeownership plans before investing in a reduced rate.
- Private mortgage insurance (PMI): Mandatory for down payments below 20%, PMI might involve an upfront fee at closing, depending on the loan type. While usually part of your monthly payment, some loans allow for it to be paid as a one-time fee.
- Title insurance: Title insurance is a one-time closing cost, with buyers typically covering both lender and owner policies.
- Homeowners insurance: In Massachusetts, your annual homeowner’s insurance premium may be included in your closing costs.
- Homeowners Association dues: If your property belongs to a homeowners association, you may need to pay one month’s dues upfront at closing. These fees vary and contribute to maintenance and operational expenses.
- Property taxes: As part of Massachusetts’ closing costs, you may be required to prepay a portion of your property taxes at closing.
Seller’s closing costs in Massachusetts
Seller’s closing costs in Massachusetts can vary but typically include the following fees and expenses:
- Real estate agent commission fees: These fees can be substantial for sellers and are subject to negotiation. It’s advisable for sellers to discuss their options with their agent.
- Homeowners Association fees: If the property is part of an HOA, the seller may need to cover various fees, such as HOA transfer fees, outstanding dues, and potential charges for obtaining required HOA documents for the buyer. The exact fees depend on the HOA’s rules and regulations.
- Property taxes: Sellers are accountable for any accrued but unpaid property taxes up to the closing date. These unpaid taxes are typically prorated for the months of ownership.
- Title insurance: Seller typically pays for owner’s title insurance, a common closing cost in Massachusetts.
- Transfer taxes: Depending on the location and local laws, sellers in Massachusetts may need to pay state and local transfer taxes. These taxes are usually based on the property’s sale price and are collected during the property’s ownership transfer.
Data on median home sale prices sourced from the Redfin Data Center as of July 2024.