5 Ways to Lower Your NJ Closing Costs in 2023

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Homes are expensive. And New Jersey routinely ranks as having among the most expensive homes in the entire country.

The Garden State also just happens to have among the most expensive closing costs and property taxes in the country too. All of this leads to great difficulty for many residents to join the ranks of homeowners in New Jersey.

Today, I'm back to focus on closing costs in particular. Luckily, there are a number of strategies that you can use to cut your NJ closing costs in 2023 - and beyond.

First, let me clarify what closing costs are in the first place. Your closing costs are a set of fees and expenses that incur in the home buying process and pay for at the time you take ownership of your house.

These expenses are meant to pay your lender, real estate attorney, title company, and other involved parties for services provided to you during the home buying process.

Related: Our first-time home buyer guide

When you buy your new home in New Jersey, you'll be responsible to pay a whole host of closing costs. These expenses tend to fit into three major categories:

Part of your closing costs will cover the first installment of recurring fees that you will pay as long as you own your new home. The three potential fees falling into this category are homeowner's insurance, property taxes, and HOA fees, if applicable.

Homeowner's insurance

Most, if not all, mortgage lenders will require you to have a prepaid year of homeowners insurance in place before or at your closing. Making sure that you have sufficient coverage is really important, as it protects not only the bank in the event that something happens, but also protects your financial interests as well.

I recommend that you start by checking out rates through SuperMoney.

Property taxes

In New Jersey, the average property tax rate in New Jersey is 2.42%, according to Smart Asset. This is over double the national average of 1.07%, and also the highest rate in the entire country. Depending on when in the year you close, you'll most likely pay for a few months worth of property taxes, depending on how your lender wants to establish your escrow account.

At this 2.42% rate, a $400,000 house will carry an annual property tax of $9,680. Most New Jersey towns and cities collect property taxes quarterly on February 1, May 1, August 1, and November 1.

HOA fees

If you're buying into a community with a homeowner's association, you may be responsible for paying some fees at the time of closing, including HOA transfer fees and other costs.

Another chunk of your closing costs will pay your lender and related parties for their time and work to prepare your mortgage documents. You may be charged for fees such as:

Mortgage application fee

This is lender-specific, but many lenders do charge you an application fee for their time in reviewing and determining your suitability for a mortgage loan. You can expect to pay up to $600 for this service, but you can always try to ask your bank to waive the fee, especially if you have a prior relationship.

Underwriting fee

Your lender is also likely to assess an underwriting fee to reimburse the bank for their time and efforts in preparing your mortgage offer. Your underwriting fee is likely to include services such as:

Underwriting fees are not assessed if you are taking out an FHA mortgage loan since they are backed by the federal government.

Credit reporting fee

Most lenders will also assess a fee to you for the expenses they encountered while pulling your credit during the application or underwriting process.

When my fiancée and I closed on our house, this fee was around $20.

Loan origination fees

Likely the largest component of all of your lender-based closing costs, many banks will charge one-time origination fees for issuing your loan. The extent of loan origination fees can vary by lender, but generally, you can expect to pay 0.5% - 1% of the home's purchase price in fees.

You're also going to need to pay for a litany of one-time expenses, some of which will be assessed by your bank, and others that will be charged by your real estate attorney/title company.

Included in this category are fees such as:

Home appraisal

Before your lender officially clears you to close on your new home, your home will likely need to be appraised. The purpose of an appraisal is simple to understand. Basically, your lender wants to protect its financial interests by assuring that it does not loan you more money than your home is inherently worth.

Expect your appraisal to cost somewhere in the vicinity of $500.

Title search

Your bank will also mandate that you hire an attorney or title company to complete what is known as a title search on your property. The purpose of a title search is to identify any legal issues or liens on the home you're buying. It also needs to be verified that the seller actually has the legal right to sell the home.

All in, your title search is likely to cost a couple hundred dollars or a bit more.

Home inspection

Now, your home inspection technically is neither a closing item nor a mandatory expense, but I'm still including it here to present you with an accurate representation of how much the home buying process is likely to cost you.

Over the past couple of years in particular, waiving the right to a home inspection has been a trendy way to try to close real estate transactions in a seller's market, but I recommend that you always have your prospective home inspected.

The average buyer in New Jersey can expect to pay about 2% of the home's purchase price in closing costs, though this figure can vary depending on a number of variables, including:

And while these variables can influence your New Jersey closing costs, that 2% figure is likely a good target to prepare for.

As of January 2022, the average home price in New Jersey was $551,028, making NJ one of the most expensive states in the country for homeownership. Our estimated 2% closing cost projection, leaves you with projected closing costs of about $11,000. Remember - it is always better to estimate high and then come in lower.

The part of the state in which you are buying probably plays the largest role, both in terms of property prices and closing costs. Higher tax areas, like the Jersey Shore, as well as the suburbs of New York City, will likely have higher closing costs due to the higher tax rates in the area.

In fact, the property tax rates in your county and town are likely the largest variable affecting how pricy your closing costs will be.

At this time, the highest property tax towns in New Jersey are as follows (courtesy of SmartAsset:

On the other side of the equation, these NJ counties have the lowest tax rates:

Given these differences in tax rates, buying a $500,000 home in Cape May, as opposed to Camden, could save you $1,000 or more come closing.

We hear all the time from prospective New Jersey homebuyers that have down payments saved up, but are wondering what they can do to lower their closing costs. And while you do have a couple of options, you should also know that there is nothing that you can do about many of these expenses.

Closing near the end of the month will prevent you from having to pay weeks of prepaid mortgage interest. It is customary to pay the remainder of the month's interest at time of closing, so closing as close to the end of the month as possible can be beneficial in keeping your closing costs down.

There are certain fees and closing expenses that you can't do anything about, like a home appraisal. But you can select your own title company and ask your bank to waive

And if they're not willing to cut certain expenses, it helps to learn to see them as necessary expenditures on the path to becoming a homeowner.

A lot goes into deciding where to buy your house. If you're sure you want to live in New Jersey, for instance, you may be able to save money on property taxes just by buying one or two towns over.

For example, if you're looking to buy in a Northern New Jersey suburb of New York City, you're likely to encounter some of the highest property tax rates in the entire country.

Moving just a few miles south into Somerset County will reward you with much lower taxes and a realistic commute thanks to NJ Transit.

I like to tell my readers that there is oftentimes a lot of fluff within your closing costs. One such way to understand exactly what you're paying for is to ask for a closing disclosure form, which is a document that outlines exactly what your final expenses are.

Earlier in the process, you'll be given a loan estimate form. I recommend that you compare the fees between these two forms. Ask your lender to clarify any differences in expenses between these two forms.

Remember - you'll need to prepay a year's worth of home insurance when you close on your new home. So, a natural way to save money when you close is to look for the cheapest home insurance policy you can, while maintaining a level of coverage that makes you comfortable.

This is where SuperMoney comes in. As an aggregator, the SuperMoney site will help you to compare customer reviews and shop insurers and rates that work best for you.

We've created a New Jersey closing cost calculator for those that want to get an even better idea as to what you should expect to pay upon closing. Of course, our calculator does make a number of assumptions that you'll want to be aware of, including:

Unfortunately, these closing costs are only part of the equation. You'll also be responsible for paying a down payment toward your new home. Now, depending on what type of mortgage loan you take out, you may get away with putting down as little as 3.5% of the home's purchase price down (FHA loans in particular).

Generally, though, it is prudent and wise to try to put down somewhere between 10% and 20%. Not only will this lower your mortgage payments over the loan's entire term, but the closer you get to 20% down, the less time you'll spend paying private mortgage insurance, oftentimes referred to as PMI.

Now PMI is not a huge deal, but it will add to your mortgage payment. On a $300,000 loan, depending on how much you do put down, your PMI could be between $40-$80 per month.

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