Whether you’re a first-time homebuyer or not, buying a home is an exciting and big decision. But before you dive too deep into buying new furniture or appliances, you’ll want to budget for closing costs.
Closing costs are the taxes and fees associated with the purchase and sale of a home, such as title insurance and lender fees. If you’re feeling unprepared or overwhelmed, don’t worry. To help you budget for closing costs, this Redfin article will cover how much closing costs are in Alabama, who pays for them, and which costs you can expect to pay as a buyer and as a seller.
How much are closing costs in Alabama?
Before securing the keys to your new home, homebuyers will need to pay for closing costs. On average, closing costs in Alabama can range anywhere from 2%-5% of the home’s purchase price. However, keep in mind that closing cost amounts vary depending on a number of factors – such as the purchase price of the home, the type of loan, and any adjustments negotiated with the seller.
For example, if you’re buying a home in Hoover, which has a median sale price of $424,500, closing costs could range anywhere from $8,490 to $21,225. Or, let’s say that you’re currently renting in Birmingham and are looking to buy a home here, which has a median sale price of $199,150. Closing costs for a home in Birmingham could range from $3,983 and $9,958.
Who pays closing costs in Alabama?
Usually both the buyer and the seller pay closing costs. But the buyer and seller will pay for different closing costs and likely have different total closing cost amounts. Another thing to keep in mind is that buyers typically pay for closing costs out of pocket, while the seller’s closing cost payments are often deducted from the home sale proceeds.
Buyer closing costs in Alabama
For homebuyers in Alabama, you can expect to pay between 2%-5% of the home’s purchase price. If you’ve paid earnest money, which is typically 1%-3% of the home’s price, this amount will be subtracted from your closing costs. Let’s break down some of the common closing costs covered by the buyer:
- Appraisal fee: Home appraisals, which typically range from $300 to $500, are usually paid for separately at the time of the service. However, if not, you’ll need to pay for this at closing.
- Inspection fee: Although not required, a home inspection is highly recommended. Home inspections generally range from $300 to $500 in cost and are usually paid at the time of service. However, if not, it will need to be paid at closing.
- Loan origination fee: Your lender may charge a fee for creating your loan. It’s important to inquire about what this cost covers and whether it’s negotiable to potentially avoid high costs.
- Loan processing fee: Lenders may also charge a loan processing fee, covering underwriting and related services. Similar to the origination fee, check with your lender to understand its purpose and possible waivers.
- Loan discount points: If you buy discount points to lower your interest rate, you’ll pay a one-time fee at closing. These points can lower your rate by 0.25% to 0.5%, but consider your long-term homeownership plans before paying for a reduced rate.
- Private mortgage insurance (PMI): When your down payment is under 20%, you’re typically required to pay PMI. Some loans allow upfront PMI payment at closing, giving you the choice between higher upfront costs or increased monthly payments.
- Title insurance: Title insurance is a one-time closing cost, with buyers commonly paying for both lender and owner policies.
- Homeowners insurance: Your annual homeowners insurance premium may be included in your closing costs in Alabama.
- Homeowners Association dues: If your property is part of a homeowners association, you’ll likely pay one month’s dues upfront at closing. These fees vary and contribute to maintenance and operational costs.
- Property taxes: As part of closing costs in Alabama, you may be required to prepay a portion of your property taxes at closing.
Seller closing costs in Alabama
The closing costs covered by sellers in Alabama can vary, but here are some of the common fees and costs covered by sellers:
- Real estate agent commission fees: These fees can be a significant cost for sellers. Commission fees may vary and are subject to negotiation. Sellers should discuss their options with their agent.
- Homeowners Association fees: If the property is part of a homeowners association, sellers are usually responsible for settling any outstanding HOA fees or assessments up to the date of closing. Additionally, sellers may need to provide certain HOA documents to the buyer as part of the sale.
- Property taxes: Any outstanding property taxes will be due at this time. However, if the seller has prepaid property taxes for the period that extends beyond the closing date, they may be credited back for the portion they’ve paid but won’t use.
- Title insurance: Owner’s title insurance is another common closing cost in Alabama paid for by the seller.
- Transfer taxes: In Alabama, sellers are responsible for paying state and possibly local transfer taxes. These taxes are typically a percentage of the property’s sale price and can vary widely by jurisdiction.
Median home sale price data from the Redfin Data Center during July 2024.
