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Closing costs are up. Here’s how you can save on them.

The soaring price of a typical South Florida home has raised closing costs, too. Buyers now have to come up with more cash not just for the down payment but for fees associated with the transaction.

The median sale price of a Miami home has jumped to $560,000 in March from $394,000 two years earlier, according to Redfin. That 42% increase means that a buyer making a 20% downpayment that month would have had to bring $33,200 more to the table than at the same time in 2021.

Other out-of-pocket expenses due at closing add up:

  • Title search fee: The title company researches property and court records to see whether liens or other issues could affect the property's ownership.
  • Title insurance: The coverage protects the buyer and lender from title issues that arise after the sale. Buyers usually purchase one title insurance policy for themselves and another for the lender.
  • Closing or settlement fee: The title company charges for paperwork and time to handle the transaction.

Lenders have charges, too:

  • Origination fee: This covers processing costs associated with a loan application.
  • Appraisal fee: A licensed residential property appraiser determines the fair market value of the property.
  • Credit report fee: This pass-along expense is for the buyer's credit report.
  • Points: Each point equals 1% of the borrowed amount. The more points paid at closing, the lower the rate.

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While an attorney is not required in Florida for closing, some buyers want a lawyer to review the sales contract. This expense is billed separately.

How can a buyer save money on closing? By negotiating for seller credits. When South Florida residential sales and prices were soaring, homeowners didn’t have to make concessions. In this slower market, a motivated seller will be more likely to contribute to closing costs in order to complete the transaction.

The seller is most likely to give a fixed amount known as a “flat credit.” It will be noted as an addendum to the sales contract. The buyer decides how to use the money.

One of the most effective applications is to lower the monthly mortgage payment by paying more points. Known as a “buydown,” each point lowers the rate by about one-quarter of 1%.

For example, Freddie Mac reported on April 27 that that average rate on a 30-year-fixed-rate mortgage was 6.43%. Using seller money to pay 2 points toward the loan would drop the rate to 5.93%.

With a 20% downpayment on a typical Miami home, a buyer would borrow $448,000. With a 2-point rate buydown, the monthly payment of principal and interest would drop to $3,100 from $3,246. The buyer would save $8,760 in interest in the first five years of the mortgage.

Tropical Financial is helping borrowers save on the cost of buying a home. From May 8 through August 8, the credit union is giving a $500 discount on its closing costs. 

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