Updated: Jun 8
Prospective homebuyers in Connecticut and around the country look forward to the day in which they join the ranks of homeownership. Everyone knows that buying a house is expensive, but it also comes with a series of associated costs that aren't talked about enough.
Closing costs are among the largest of these expenses.
Today, I'm going to cover closing costs in Connecticut and help you prepare for them.
Related: A Guide for First-Time Home Buyers
How to prepare for Connecticut closing costs
Here are four steps to help you prepare for the closing costs you'll incur when you buy your new home in Connecticut:
Understand what closing costs are
Know how much average CT closing costs are
Try to lower your closing costs
Let's visit these steps one by one.
1. What are closing costs?
Closing costs are the set of fees and expenses that you will pay to officially complete the real estate transaction in which you are involved. You'll find that there are many different fees, some small and some large, that will be paid to the different parties involved in transferring ownership of the home to you.
Generally, though, your closing costs fit into one of a few different categories, including:
Lender fees: Fees paid to your bank for issuing you a mortgage
Title fees: Expenses paid to your title company/real estate attorney
Property-based fees: Inspections and examinations of your new home
Down payment: Not technically a closing cost, but included in your final "cash to close" estimate
Lender based closing costs
The first and most expensive portion of your closing costs are those fees that will be paid to your lender in exchange for processing and loaning you money to buy your home.
Let's review a number of these fees.
Loan origination fee
Your largest closing expense is likely to be your most expensive closing cost requirement. Averaging 0.5%-1% of your loan amount, this is one expensive fee.
However, you may be able to work with a lender that does not assess loan origination fees, a perk that could save you $1,000-$3,000 - or more! At last check, the following no origination fee lenders were available for Connecticut buyers to consider:
Navy Federal Credit Union
Mortgage application and underwriting
Your lender is also likely to assess fees for mortgage application and underwriting. When my wife and I bought our house in Connecticut last summer, these fees came out to about $500, though it may vary somewhat by lender.
Please note that these fees provide an opportunity for you to negotiate with your lender. In some instances, you may be able to get these fees waived.
Some lenders will also assess document preparation fees to borrowers in exchange for putting all of their documents together. In some instances, this fee will be lumped into your application and underwriting fees.
Your bank charges you for anything and everything. Among these fees will be your credit report charges. It won't cost you much, but even $25-$50 at a time will add up with the sheer number of expenses payable at closing.
Prepaid mortgage interest
The month of your closing is the only time that you will ever prepay mortgage interest, and you will do so for the remainder of the month in which you close. This is standard in the homebuying industry, so you won't have much luck in avoiding these fees.
Most all lenders will mandate that you buy title insurance, which protects your ownership claim to the property. In the event that the home later has a title problem due to things like filing errors, you will be protected financially.
All in, you should prepare for these expenses to be at least $1,000, in addition to any loan origination fees. Depending on the lender you use and the strength of the real estate market in your area, it doesn't hurt to ask your lender for flexibility in waiving one of more of these fees.
Title fees in CT
The second major closing cost category that you'll encounter are your title fees. In most instances, you'll need a professional real estate attorney or title company to complete services and paperwork for you, and those services do not come free.
Among the services provided by your title company are:
On top of being compensated for these, you'll likely also need to foot the bill for courier fees and closing fees. These are not huge expenses - in Connecticut, you'll likely spend between $500-$1,000 in title related fees.
Property related fees
Your last major closing cost category encompasses your property related expenses. You'll likely want/need to complete items such as your home inspection and appraisal, and you'll also need to foot the bill for homeowner's insurance.
The costs of these things vary by location and property size, but your inspection and appraisal together will generally cost somewhere in the vicinity of $1,000 in Connecticut. Your insurance is mandated by your lender and will be a recurring expense each year you own the property.
Your down payment
The largest amount of money that you'll pay for on closing day will be for a non closing cost - your down payment. You'll typically complete this via wire or bank check. Most down payments are equal to at least 10% of the home's purchase price and could be 20% or even more for those buyers looking to build home equity more quickly. In Connecticut, this could easily be $30,000 or more dollars.
The main exception to this would be if you use an FHA, VA, or USDA loan, since they may require as little as 3% down and have more relaxed approval processes.
Also keep in mind that where you save you down payment is important. Not all banks are created equally, and we've found that online banks like CIT offer much higher APYs than traditional brick and mortar banks do.
2. How much are closing costs in Connecticut?
On average, your Connecticut closing costs will average about 2.5% of your home purchase price. This figure can vary greatly depending on a number of factors, but in general, homebuyers in Fairfield County can expect to pay more due to higher property tax rates than the rest of the state.
Therefore, your CT closing costs are likely to fall between 2-4% of the purchase price of your home.
Variables that impact closing costs
Your ultimate closing fees are also subject to change based on:
When in the month that you close
The property taxes in your town/city
The date of your closing
Many prospective homebuyers, in Connecticut and around the country, don't know that the actual calendar date in which they close actually plays a role in determining what you'll owe on closing day.
As you'll remember, the month of your closing is the only time that you'll be required to prepay mortgage interest, for the remainder of the calendar month.
Connecticut property taxes
Your property taxes will impact your closing costs because you'll likely be required to pay a number of months before you officially move into your new home.
Connecticut is well-known for having some of the highest real estate tax rates in the entire country. In fact, the state is ranked 4th of all states in terms of property taxes paid as a percentage of median income.
The three highest property taxes counties across the state at this time are:
Fairfield County ($6,221)
New Haven County ($4,621)
Middlesex County ($4,458)
More: Check out tax rates by CT county
Meanwhile, the following counties have the lowest tax burdens across the state:
Windham County ($2,970)
New London County ($3,539)
Litchfield County ($4,030)
As you can see, the county that your home resides in could impact your ultimate closing costs by $1,000 - or even more!
3. Budget for closing costs
If you wait to budget for your closing costs until you've already purchased a home, it is too late. Instead, I encourage you to begin budgeting for your closing expenses as soon as you begin saving for your down payment and other associated homebuying expenses.
I recommend that you save for your expenses by opening a high-yield savings account with CIT Bank.
Here are a few budgeting tips to help you make progress in meeting your savings goals:
Open a separate savings account to buy your home: Use a separate account to prepare for all the expenses you may face as you buy your home in The Nutmeg State. This way, you'll know exactly how much money you have to put towards your new home.
Estimate your expenses on the high-end: Even if you plan on working with a no origination fee lender like Ally Bank, it is a good idea to prepare as if you'll need to pay that expense. It is always better to come in under budget than above.
Build a saving habit: Unless you earn hundreds of thousands of dollars per year and have few bills, saving for the homebuying process is going to take some time. It will not happen overnight, meaning that the best way for you to reach your goal is to regularly save smaller increments of money over a longer period of time.
4. Lower your CT closing costs
Unfortunately, many of the closing associated fees that we've mentioned here are nonnegotiable. They are services and expenses that you must incur to legally take ownership of your new property. But that does not mean you are powerless and without options to control your expenses.
Consider using the following strategies to help minimize what you owe.
1. Finance your closing costs
This isn't our favorite strategy, since it will lead to higher mortgage payments for the entirety of your loan term, but in some instances, you may find it possible to finance your costs as part of your mortgage.
Just keep in mind that you will be paying interest on these expenses if you go that route.
2. Negotiate with the seller
Now this won't work in a buyer's market, but if you're buying during hard economic times, you can ask the seller to split your closing costs with you. It is totally up to the seller to decide if this is something they would consider, but it does not hurt to ask.
3. Close late in the month
Another "lever" you can pull is closing late in a month. Since you'll be on the hook for the remainder of the month's mortgage interest, by closing near the end of the month, you can save yourself nearly a month of interest payments.
It may not save you huge money, but a few hundred dollars is definitely on the table.
4. 1st time home buyer or closing cost programs
Recently, we wrote about the various first-time home buyer programs in Connecticut. Many of them are offered by the Connecticut Housing Finance Agency (CHFA), and programs available to CT residents include mortgage programs, as well as down payment and closing cost assistance.
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