It’s got a mix of mountains and beaches, plus historic resort towns and New York City on its doorstep — there’s plenty to love about living in New Jersey. If you’re a homebuyer ready to call New Jersey home, or even a first-time homebuyer, make sure you save up, though: Closing costs in the Garden State are some of the priciest in the country.
Closing costs encompass all the administrative and legal services you’ll need to pay before you receive the keys and title to your new home. Instead of paying for each service separately, you pay these costs in a lump sum on closing day. And they can add up quickly, amounting to 2 percent to 5 percent of your home’s purchase price, paid alongside your down payment.
Here’s a closer look at what you can expect to pay in closing costs in New Jersey, what’s typically included, and how you can potentially lower these costs.
How Much Are Closing Costs in New Jersey?
Closing costs in New Jersey are, on average, $4,645 for a home priced at $333,522, according to a 2021 report by ClosingCorp, which researches residential real estate data. That makes up 1.39 percent of the home price. The Garden State’s closing costs are the fifth highest in the country, just behind Washington, D.C., New York, Pennsylvania, and Washington state. The national average for closing costs for a single-family home is $6,087.
Count on spending far more than these estimates, though. 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 New Jersey: The median price for a single-family home was $440,000 as of November 2021, up 8.6 percent from the year before, according to data from the New Jersey Realtors Association. If homebuyers should earmark 2 percent to 5 percent of their home’s purchase price on closing costs, estimates would be around $8,800 to $22,000.
Keep in mind, closing costs will fluctuate depending on the price of your home, its location, and the complexity of the sale.
What’s Typically Included in New Jersey’s Closing Costs?
What exactly are you paying for in closing costs? With so many moving parts, it’s easier to group closing costs into three categories: mortgage-related fees, property-related fees, and annual recurring fees. Each state also has its own set of regulations you’ll need to follow. Here’s what to expect for New Jersey.
Unless you’re buying your new home with cash, you’ll need to get approved for a mortgage. These are the closing fees you’ll incur from your lender, along with state protocol for hiring an attorney.
Loan Origination Fees
Your lender will charge you loan origination fees for all the administrative work involved in setting up your home loan, such as underwriting, providing preapproval letters for your house hunting, checking your credit history, and processing your funding.
Estimate loan origination fees to be about 0.5 percent to 1 percent of your loan amount.
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 report to have a look at how you’ve managed your existing debts over the past few years. Expect your lender to pass along this expense to you. If there is more than one borrower, double the 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. PMI allows borrowers to qualify for a conventional loan if they can put down 5 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 have to worry about PMI payments.
Hiring a real estate attorney to help you with legal aspects of the closing process is customary in northern New Jersey, while the rest of the Garden State typically relies on title companies instead.
An attorney can help with drafting your purchase agreement, certifying deeds and reviewing contracts, title examinations, and home insurance policies. You also may want to hire a lawyer if your home purchase is a complex one, such as you’re buying from out of state, the property has physical damage or it’s in foreclosure.
A title company — or escrow agent — can help you get to closing day without any hiccups. Your title company will act as a neutral third party, setting up an escrow account to hold your earnest money deposit, down payment, taxes, and other expenses. This way, the seller won’t receive any funds until both parties meet all their conditions on the sale and the contract is finalized. Your title company will also guide you through the checklist of things you need to complete by closing.
In New Jersey, buyers and sellers typically split this cost right down the middle.
Before you make the single biggest purchase of your life, you’ll need to hit some pivotal checkpoints to make sure your new home is a sound investment.
A title examination involves searching historical title documents to make sure the property you’re buying is free and clear for you to own. The last thing you want is to trade your life’s savings for land that’s caught up in ownership disputes, unpaid taxes, or lawsuits in progress.
Deeds, court records, and property and name indexes are examined during the search. This is a crucial step, 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 homeowner’s insurance and PMI — that you’ll need to buy before your lender is willing to fund your home loan.
Title insurance covers you and your lender in case something is overlooked during the initial title search. If your ownership is questioned, the insurance will cover court courts and related fees.
In New Jersey, buyers typically pay for title insurance. This insurance is a one-time expense that stays in effect until you sell your property.
Another make-or-break step in the homebuying process is the appraisal, in which your lender 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.
To determine your potential new home’s market value, the appraiser will look at the property’s specs, its size and condition, and how it stacks up to similarly priced homes in the neighborhood.
Your lender gets to choose the appraiser but you’re responsible for the bill.
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 information because you can ask the seller to adjust the price to compensate for repairs you would need to make.
Real Estate Transfer Tax
The real estate transfer tax — also called a deed tax, mortgage registry, or stamp tax — is a typical charge each time property switches hands. New Jersey has a complicated system for real estate transfer taxes, with different rates set depending on the total value of the home being sold.
If your home purchase is $150,000 or less, the transfer tax is $4 for every $1,000 of property value. From there, tax rates creep up — a home with a price tag of $350,000, for example, comes with a transfer tax of $7.80 for every $1,000 of property value. See the full list of tax rates on the state’s Division of Taxation website.
The state offers lower transfer tax rates to seniors, people who are blind or with disabilities, and households that are categorized as low-income.
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 New Jersey, homeowners pay, on average, 2.21 percent of their home’s assessed market value in property taxes, according to the Tax Foundation, a decades-old tax policy nonprofit. The precise rate will vary depending on the taxes levied in the county you’re moving to, but overall, the state has expensive property taxes compared to the rest of the country.
Homeowner’s insurance is a mandatory purchase you’ll need to make before your lender transfers your mortgage funds. A standard policy covers you in case something happens to your property such as fire, vandalism, or theft.
Homebuyers in New Jersey must determine whether they should add an extended policy to cover natural disasters, like snowstorms or flooding, that aren’t covered in the standard policy.
Like property taxes, this is a prepaid expense, meaning it must be paid for in full at closing and can’t be rolled into the home financing.
Homeowners Association Fees
Nearly 26 percent of New Jersey homeowners are members of a homeowners association, so there’s a one in four chance you may be responsible for this annual fee.
HOA fees cover the cost of the various amenities provided by your neighborhood, including clubhouses, community parks, and fitness centers. They also can be used to keep the community running, with trash removal, security services, and fire alarm systems.
Ask about HOA fees upfront when you’re shopping for a home. This way, you’ll know how much you’ll need to budget for this cost and what it includes.
How Can I Lower My Closing Costs in New Jersey?
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 New Jersey’s homeownership assistance programs as a potential way to cut down on your closing costs.
Start your research with the New Jersey Housing and Mortgage Finance Agency. It provides down payment assistance to first-time homebuyers in the form of a $10,000 interest-free, five-year forgivable loan that requires no monthly payments. If you qualify for this loan, you can instead reallocate your savings toward your closing costs.
Focus on Your Finances
Get your finances and credit score in great shape before you head to the lender’s office to ask for a mortgage. If you can show lenders that you’re a low-risk borrower, you may be able to secure a home loan with a lower interest rate, which would save you thousands of dollars 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 to put toward your 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 on who pays for what on closing costs are 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
If you can’t come up with the cash for closing costs, you may opt to roll this expense into your home loan. This way, you don’t have to pay these costs on closing day, but the total will be added to your monthly mortgage payments.
While this is a convenient alternative to paying for closing costs up front, 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.