With its world-renowned creole cuisine, incredible live music and festivals, and stunning scenery from the southern Bayou to the rolling hillsides in the north, it’s hard to beat life in Louisiana. If you’re a homebuyer planting roots in the Pelican State, make sure you’re saving up not just for a down payment for your new home but for closing costs, too.
While saving down payment is at the forefront of homebuyers’ minds, closing costs are what often fall to the wayside. A 2017 poll found that 35 percent of Americans are caught off guard by how costly they are. Another 17 percent didn’t even see this expense coming, according to a survey conducted for ClosingCorp, which researches residential data.
Plan now to start saving because you’ll need to pay plenty of fees on closing day. Some expenses involve the services you’ll need during the homebuying process, from setting up your loan to getting the property appraised and inspected. Other costs you’ll incur are property taxes, HOA fees, and homeowner’s insurance. Ultimately, closing costs amount to two to five percent of your home’s purchase price, paid alongside your down payment, making for one expensive day of spending!
So how much are closing costs in Louisiana? Here’s our guide on how much you should save.
How Much are Closing Costs in Louisiana?
Louisiana is the 23rd state with the highest closing costs – an average of $2,681 for a home priced at $164,586. That makes up 1.63 percent of the home price, according to a 2021 report by ClosingCorp.
For comparison’s sake, homebuyers in New York spend $8,256 on closing costs, some of the highest in the country, while in Missouri, closing costs estimates are low at $1,290. The national average for closing costs for the purchase of a single-family home was $6,087 in 2021, according to ClosingCorp.
Count on spending more than these estimates, though. ClosingCorp’s data excludes two key costs: the loan origination fees and private mortgage insurance, which you’ll need to buy if you have a down payment of less than 20 percent of the home’s purchase price. Combined, these could add up to thousands of dollars.
You’ll need to factor in state-specific expenses, too. In Louisiana that could mean a flood certification and any extra home insurance policies you’ll need to buy.
Home values have also crept up in the Pelican State: the average price for a single-family home was $264,984 in 2021, according to Louisiana Realtor statistics. If homebuyers should earmark two to five percent of their home’s purchase price on closing costs, estimates would be around $5,299 and $13,249.
Keep in mind, closing costs will fluctuate depending on the price of your home, its location, and the complexity of the sale. Closing on a luxury home in the heart of New Orleans will cost a small fortune compared to a single-story home in St. Francisville, for example.
What’s Typically Included in Louisiana Closing Costs?
Closing costs can be grouped into three categories: property-related fees, mortgage-related fees, and annual recurring fees. The Pelican State also has its own set of nuanced rules on who pays for what.
Here’s what to expect for Louisiana.
Loan Origination Fees
Unless you’re buying a home with cold-hard cash, your first stop in the homebuying process will be to a lender to apply for a mortgage. Your lender will charge loan origination fees to set up your application, from underwriting your loan to checking your credit history to processing your funding.
Loan origination fees are typically about 0.5 to 1 percent of your loan amount. With average home prices at $265,000, loan origination fees could be $5,300 to $13,250, depending on the price tag of the home.
Credit Report Fee
Before your lender decides you’re a responsible borrower, they’ll need to do a full credit check which includes pulling your credit score to have a clear snapshot of how you manage debt.
Expect your lender to pass along the cost of requesting your credit report to you. If there is more than one borrower, double this cost.
Private Mortgage Insurance
If you aren’t providing a 20 percent down payment, your lender will expect you to buy private mortgage insurance. PMI allows borrowers to qualify for a conventional loan even if they put down only five to 19.99 percent of their mortgage.
While you’re the one paying for the insurance, the coverage is for your lender. Since you haven’t put down 20 percent, PMI protects your lender in case of loan default.
This cost isn’t included in the ClosingCorp tally of closing costs expenses, but PMI typically ranges from 0.25 percent to as high as 2.25 percent of your balance, depending on the size of your down payment and credit score.
Once you pay off 20 percent of your home, you won’t have to worry about PMI payments.
While in some states it’s mandatory to hire a real estate attorney to help you with the entirety of your closing process, Louisiana doesn’t have this requirement.
Under state law, however, you’ll need a licensed attorney to examine and certify the title to your new home. In a nutshell, your lawyer needs to examine the title search and title insurance policy to make sure you’re buying a property that’s free and clear and that your title insurance is up to snuff in case things go awry.
You may also hire an attorney to draft and review purchase agreements, finalize the contract, and oversee the transfer of the deed at closing.
Both attorneys and title agents can conduct closings. Typically, lawyers charge by the hour or ask you to pay a retainer fee.
While it may seem costly, having a real estate lawyer on your side can provide you with peace of mind.
You may decide to hire a title company to help you with the closing process so that you get to closing day on time and without any hiccups.
Your title company will set up an escrow account. Escrow is a financial arrangement where a neutral third party holds your funds in a separate account; you won’t pay your down payment, taxes, and other expenses until the contract is finalized. In this case, your title company will retain the funds until both parties have met all their conditions on the sale.
Your title company will guide you through the checklist of things you need to complete by closing.
Louisiana Real Estate Transfer Tax
Homebuyers in Louisiana catch a lucky break: it’s one of 13 states that doesn’t impose real estate transfer taxes.
The real estate transfer tax – also called a deed tax, mortgage registry, or stamp tax – is typically tacked on when the seller transfers the home to the buyer. It’s usually a percentage of the home’s purchase price, up to as high as four percent. Some taxes are paid to the state and some to the county.
You’re saving cash by skipping this step!
You’ll need to pay for a title search, which involves searching historical title documents to make sure the property is free and clear for you to own.
During the search, deeds, court records, property and name indexes, and other record-keeping are examined to confirm the property has no outstanding ownership disputes, unpaid taxes, judgments, or lawsuits in progress.
This is a crucial step your lender may insist on before issuing your mortgage, whether you’re buying a new build or an existing home. You’re on the hook for this expense.
When the title search is complete, you’ll need to back up this work with adequate insurance for both you and your lender, via owner’s and lender’s title insurance policies.
Your lender will require you to purchase title insurance before funding your loan, alongside homeowner’s insurance and PMI.
It will cover you and your lender in case something is overlooked during the initial search. Should something go awry, the insurance will cover court courts and related fees.
Before your lender issues your mortgage, they will send a third-party appraiser to the property to make sure the value is accurate.
If you default on your mortgage and your lender forecloses, they need to know they can sell the property to recoup the cost of your loan.
The appraiser will scan the home to determine how it stacks up to similar ones in the community and determine its fair market value.
Your lender gets to choose the appraiser but you’re responsible for picking up the bill.
Checking for termites, aging appliances, a leaky roof – a detailed home inspection is your guardian angel before you make the biggest purchase of your life.
It’s in your best interests to hire a professional home inspector who will check on the health and safety of your potential new home. Pay attention to their feedback: your home inspector will point out any existing issues or that could surface in the coming years. This is valuable intel because you can ask the seller to make any repairs before finalizing the deal.
Price points for a home inspection will vary, depending on the size of the property and where it’s located.
Your lender may require you to spend $50 for a flood certification to categorize your home’s flood risk and insurance requirements.
ClosingCorp states that Florida and Texas are the only states where land surveys are mandatory for single-family homes. But some lenders in Louisiana may insist on hiring a property surveyor to check on the home’s boundaries. It may even be a mandatory step before issuing your loan.
Property taxes are just one of the many expenses you’ll have to factor into your annual budget as a new homeowner alongside homeowner’s insurance and HOA fees.
Louisiana homeowners pay some of the nation’s lowest property taxes: .51 percent of the assessed market value.
Count on paying for this expense, prorated, at closing, and then annually each December.
Homeowner’s insurance, which covers you in case something happens to your home such as fire, vandalism, or theft, is typically required by your lender before they transfer over your mortgage funds. You must have your insurance policy in effect and paid for the upcoming year before you move in.
In Louisiana, you must check on whether you should add extended policies to your standard policy to cover natural disasters that aren’t covered in your standard policy. You may be in a flood zone, for example, where coastal flooding and storm damage may put your home in harm’s way.
Make sure your insurance policy provides adequate coverage and is kept up to date.
This is a prepaid expense, meaning it must be paid for in full at closing and can’t be rolled into your home financing.
About 10 percent of homeowners are members of a homeowners’ association in the Pelican State, so you may be responsible for this annual fee.
HOA fees cover the cost of the various amenities provided by your neighborhood, such as clubhouses, pools, community parks, and fitness centers. They also are used to keep the community running with trash removal, security, and fire alarm systems. The more elaborate your HOA is, the more you should expect to pay.
At closing, your seller will cover their outstanding balances to the HOA, then transfer the membership to you.
Ask about HOA fees upfront when you’re shopping for a home so you know how much you’ll need to budget and what it includes.
How Can I Lower My Closing Costs in Louisiana?
Is the sticker shock setting in? If you’re wondering how you’ll come up with the cash to close on your home, here’s a rundown of key strategies homebuyers should try to save thousands.
Closing Cost Assistance
Making use of homeownership assistance programs in Louisiana is the most efficient way to make the biggest reduction in closing costs.
Your first stop in your hunt for closing costs assistance should be the Louisiana Housing Corporation (LHC). Income-eligible first-time homebuyers can apply for programs that offer down payment and closing cost assistance in the form of a second mortgage or deferred loan. The LHC also offers statewide programs with closing cost assistance for repeat homebuyers.
Look into regional programs, too. From Alexandria to New Orleans and Jefferson Parish, funding is available for closing cost assistance.
Focus On Your Finances
Get your finances in shape before you start shopping for a mortgage. Stay on top of your existing loans, pay down your debts to keep your debt-to-income ratio low, and don’t apply for more credit before you make your case to lenders.
Your aim is to secure a low interest rate, which could save you thousands of dollars over the lifetime of your mortgage.
Save as much as you can, too. The closer you get to the 20 percent down payment threshold, the less you’ll have to pay in PMI. Even if you only have a 15 percent down payment, once you hit the 20 percent equity mark as a homeowner, you’re off the hook for PMI.
Shop around for the best interest rate on your mortgagor for any other service providers you’ll need during the homebuying process.
Read reviews, check out referrals from friends and family, and look at service providers’ accreditations. Then obtain quotes to find the best deal.
Negotiate Loan Fees
Consider your relationship with your lender. Are you a repeat or longstanding customer making use of multiple loan products that are all in good standing? You could ask your lender to omit certain expenses from the final bill for your home loan. The lowest hanging fruit you can target are fees that are labeled as “junk fees,” such as rate lock fees, loan processing fees, and broker rebates.
You could also ask your lender to stagger these expenses, so they’re paid during the homebuying process in stages instead of at closing.
There is always wiggle room when you’re negotiating on a home sale, especially if you’re in a buyer’s market where the seller or builder is eager to make the sale.
Negotiating price and compromising on who pays for what on closing costs are a routine part of the homebuying process. Don’t shy away from asking your lender to pay for some — or all — of your closing costs, especially if you offer to submit a full-price offer. You could also ask them to cover some of your closing costs if your inspector flagged issues that needed repairs or you choose to pay a premium for upgrades on a new build.
In other words, there are a handful of different scenarios where you could ask the seller to share the expenses.
Adding Closing Costs to Your Home Financing
Homebuyers who can’t come up with the cash for their closing costs may opt to roll this expense into their home loan. This way, you don’t have to pay for your closing costs tab on closing day, but the total will be added to your monthly mortgage payments.
This is a convenient alternative to paying for closing costs upfront. The downside? You will pay interest on your closing costs across the life of your loan.
This option may not be available to all homebuyers.
Another solution you may be able to pitch to your lender is a “no-closing-cost” mortgage. In this scenario, your lender agrees to pay for part – or all – of your closing costs. In turn, you pay a higher interest rate on your mortgage.
Run some calculations before you decide if this is the best route to take. In the long run, this option could cost you more money because of the bump in your interest rate.
Carmen Chai is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. For NewHomeSource, Carmen covers a variety of topics, including insurance, mortgages, and more.