You’ve saved for a down payment, secured a competitive interest rate for a mortgage, and are ready to buy a new home in Ohio. But there’s just one more expense to consider: closing costs.
Closing costs encompass all the administrative and legal services you’ll need to pay before you receive the keys to your new home. Think of the fees you are billed throughout the homebuying journey, from applying for a mortgage to getting the property inspected and appraised. Various taxes and insurance premiums can be included in the closing costs tab, too. For convenience’s sake, you’ll pay these costs in a lump sum on closing day, alongside your down payment. Typically, closing costs amount to 2-5 percent of the home’s purchase price.
If you’re buying a new home in Ohio, NewHomeSource has created the following guide on how much you should be saving, a breakdown of what’s generally included, and how you can potentially lower these costs.
How Much are Closing Costs in Ohio?
Closing costs in Ohio are, on average, $1,992 for a home loan of $145,637, according to a 2021 report by ClosingCorp, which researches residential real estate data. That makes up 1.48 percent of the home price. The Buckeye State’s closing costs are right in the middle of the pack, ranking 20th for the cheapest closing costs in the country. Overall, it’s safe to say closing costs are cheaper in the Midwest, though – Missouri, Indiana, Iowa, South Dakota, and Wisconsin are also among the top 10 states with the lowest closing costs. In Missouri, for example, they are a mere $1,290 for a home loan of $177,915. For comparison’s sake, the national average is $6,087.
Homebuyers in Ohio should anticipate spending far more than these initial estimates. That’s because ClosingCorp’s data excludes two key costs: loan origination fees (if you’re applying for a mortgage) and private mortgage insurance, which you’ll need to buy if you have a down payment of less than 20 percent. Combined, these expenses can easily add up to thousands of dollars.
Home values have also increased in Ohio: The average price for a single-family home in 2021 was $239,295, a 12.3 percent increase from the prior year.
Keep in mind, closing costs will vary depending on the price of your home, its location, and the complexity of the sale.
What’s Typically Included in Ohio’s Closing Costs?
Homebuyers can keep track of these fees by grouping them into three categories: mortgage-related, property-related, and those that recur annually.
Each state also has its own set of regulations you’ll need to follow, from hiring a lawyer to paying for real estate transfer taxes. Here’s what to expect in Ohio.
Unless you’re buying your new home with cash, you’ll need a mortgage. These are the closing fees you’ll incur from your lender, along with state protocol for hiring an attorney.
Loan Origination Fees
Earmark loan origination fees of about 0.5 percent to 1 percent of your total mortgage to pay for setting up your home loan. Your lender will charge you for this amount for all the administrative work involved in setting up your home loan, from the underwriting to providing preapproval letters for your house hunting to processing the funding at closing.
Credit Report Fee
Just like when you apply for a credit card, personal loan, or car loan, your lender needs to conduct a full credit check to make sure you’re a responsible borrower. They’ll pull your credit report with the various bureaus to have an in-depth look at how well you manage debt.
Count on your lender to pass along charges incurred for requesting your credit report. If there is more than one borrower on the loan application, double this cost.
Private Mortgage Insurance
If you aren’t providing at least a 20 percent down payment, your lender will expect you to buy private mortgage insurance, or PMI. This allows borrowers to qualify for a conventional loan if they put down five percent to 19.99 percent of their mortgage.
While you’re paying for the insurance, the coverage is for your lender in case of default.
PMI typically ranges from 0.25 percent to 2.25 percent of your loan, depending on the size of your down payment and credit score. Once you hit 20 percent equity in your home, you won’t be required to carry PMI.
While it’s mandatory in some states to hire an attorney to help with the legal aspects of closing, Ohio doesn’t follow this rule. Still, you may still decide to hire a lawyer, especially if the purchase is complex, such as if you’re buying a property that’s in foreclosure or out of state.
You can rely on your attorney to draft your purchase agreement, examine your mortgage contract, certify deeds, and even review your title examination and insurance policies.
Ultimately, the cost for hiring a real estate attorney in Ohio will vary, depending on the home’s location, what services you require, and how complicated your home sale is.
Most homebuyers in Ohio recruit a title company — or escrow agent — to help them get to closing day without any hiccups. In a nutshell, your title company will guide you through the checklist of things you need to complete by closing.
They’ll also set up an escrow account to hold your earnest money deposit, down payment, taxes, and other expenses. With a third-party escrow account, your seller and any other vendors won’t get paid until all parties meet their obligations on the home sale and the contract is finalized.
In Ohio, buyers and sellers typically negotiate on who is going to pay this cost.
Before you hand over your nest egg of savings, you’ll need to hit some pivotal checkpoints with the property to make it’s a sound investment.
Homebuyers need to pay a title search firm to conduct a thorough title examination on their potential new home. A title examination involves searching historical title documents to verify the seller’s right to transfer ownership and to make sure the property you’re buying is free and clear. The last thing you want is to trade your life’s savings for land that’s caught up in ownership disputes, unpaid taxes, or tied up in litigation.
Deeds, court records, and property and name indexes are examined during the search. This is a crucial step that homebuyers must pay, whether you’re buying a new build or an existing home.
Once the title examination is complete, you’ll also need to buy title insurance for both you and your lender, via owner’s and lender’s title insurance policies. It’s one of several insurance policies — alongside homeowners insurance and PMI — that you’ll need to purchase before your lender funds the loan.
Title insurance covers you and your lender in case of “defects in title,” or if something is overlooked during the initial title search. If your ownership is questioned, the insurance will cover court courts and related fees.
This insurance is a one-time expense that remains in effect until you sell your property. In Ohio, there is no hard and fast rule on who pays for these insurance premiums. Instead, buyers and sellers negotiate on who bears the costs.
Before closing, your lender will send a third-party appraiser to your new home to make sure it is priced at the right value. If you can’t keep up with your mortgage payments and your lender needs to foreclose, they want to be certain they can sell the property to pay off the loan.
The appraiser will evaluate the home’s size, features, and condition, as well as how it stacks up to homes priced similarly in the community, to determine its fair market value.
Because your lender usually orders the property appraisal, consult them about the cost.
For your peace of mind, hire a home inspector to check on the health and safety of your potential new property. They’ll examine everything from the foundation to the roof as well as the condition of your appliances, the plumbing, and HVAC systems.
Listen carefully to your home inspector’s feedback: They will point out any existing issues or problems that could surface in the coming years. This is important because you can ask the seller to adjust the price to compensate for repairs you may need to make.
Real Estate Transfer Tax
Whenever real estate changes hands, buyers and sellers need to account for a transfer tax during closing. It can also be called a deed tax, mortgage registry, or stamp tax on your closing costs tab. Ohio has a mandatory tax of $1 per $1,000 of property value, which applies statewide. You may come across local county transfer taxes of up to $3 for every $1,000 of property value, too.
It’s customary in Ohio for the seller to pick up this expense.
From monthly mortgage payments to utility bills and seasonal maintenance, homeownership is an ongoing investment. Your closing costs will include a handful of fees that you’ll need to start paying annually.
In Ohio, homeowners pay 1.62 percent on average of their home’s assessed market value in property taxes. The precise rate will vary depending on the county, as some levy taxes that are as high as 2.44 percent.
Bear in mind, each county sets its own schedule for collecting property taxes. Check when yours are due and mark the due dates on your calendar.
This is a mandatory purchase that you must make before your lender transfers your mortgage funds. A standard policy pays for repairs when there’s a fire, vandalism, or theft. You may want to buy extended policies for extreme weather events, or if you’re keeping expensive heirlooms, jewelry or art under your roof.
Like property taxes, this is a prepaid expense, meaning it must be paid in full at closing and can’t be rolled into the home financing.
How Can I Lower my Closing Costs in Ohio?
If you’re wondering how you’ll come up with the cash to close on your home, here’s a rundown of key strategies that could save you some money.
Closing Cost Assistance
Look into Ohio’s homeownership assistance programs, which can be a great way to reduce closing costs – from low-interest home loans to down payment and closing assistance.
Start with the Ohio Finance Authority to see if you are income-eligible. You may also qualify if you are a first-time homebuyer or a recent graduate.
There are also programs for Ohio residents employed in a public service profession, including veterans, active-duty military, police, firefighters, teachers, and some medical professionals.
Check with your local county or city offices, too – from Columbus and Dayton to Kettering and Springfield; there are regional homeownership programs with closing cost assistance up for grabs.
Focus on your Finances
Get your finances and credit score in great shape before you apply for a mortgage. If you can show lenders that you’re a low-risk borrower, you may be able to secure a loan with a lower interest rate, which would save you thousands over the life of your mortgage.
Don’t miss any due dates on 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.
Save as much as you can for a down payment, too. The closer you get to the 20 percent threshold, the less you’ll have to pay in PMI.
Negotiating price and compromising is a routine part of the homebuying process. Don’t shy away from asking the seller to pay for some — or all — of your closing costs, especially if you’re in a buyer’s market. You could even submit a full-price offer with a caveat that the seller pays the entire closing cost tab.
If you’re purchasing a new build, talk with your builder about covering closing costs if you choose to pay a premium for certain upgrades. In other words, there are many different strategies you can use to ask the seller to share closing costs.
Adding Closing Costs to your Home Financing
Homebuyers may have the option to roll closing costs into the loan. Instead of paying them at the time of closing, the amount will be added to your monthly mortgage payments.
While it’s a convenient alternative to paying this upfront, you will end up paying interest on your closing costs across the life of your loan.
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.