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  • Writer's pictureNathan Zarcaro

3 Reasons Why Higher Closing Costs in Louisiana May Be a Good Thing

Updated: Oct 22, 2023


Louisiana home buyers oftentimes worry about affording a home and saving for a down payment.


And while warm weather, mild winters, and a lower cost of living than the national average may make Louisiana may be a great combination and option to stretch your home budget a little further, there is still the matter of closing costs.


Today, I'm here to take a unique look at closing costs in Louisiana and explain to you why high closing expenses may actually save you money in the future!




Louisiana closing cost calculator


What are closing costs?


Closing costs are the list of fees and expenses that you'll incur as a result of buying (or selling) real estate. During any real estate transaction, you'll need to pay for a bunch of different services that will be payable at the time you close.


Buyer costs includes fees that fit into these three categories:


  1. Lender/bank fees

  2. Title fees paid to a real estate attorney/title company

  3. Property fees


Typically, you'll bring a bank check to your closing for the entire amount, though you may also be given the option to wire the money as well.



How much are Louisiana closing costs?


In Louisiana, home buyers can expect to pay between 2-4% of their home's purchase price in closing costs.


Ultimately, whether you pay closer to 2% or closer to 4% depends upon three main variables:


  • Your town's real estate tax rates

  • The date of your closing

  • Whether your home has a homeowner's association



1. Property taxes in Louisiana


Louisiana has the fifth lowest property tax rate of the nation's fifty states, according to SmartAsset.


Consider Louisiana's five highest parishes by real estate tax rates:


  1. St. Tammany

  2. Orleans

  3. Caddo

  4. Cameron

  5. St. Charles


These five parishes have an average effective property tax rate of 0.70%, meaning that a home valued at $350,000 will cost about $2,450 annually in property tax.


Compare this to Louisiana's five cheapest parishes:


  1. Pointe Coupee

  2. Acadia

  3. Catahoula

  4. Concordia

  5. Iberville


These five parishes have an average rate of 0.27%, meaning that the same $350,000 home will cost about $945 in taxes.


Considering that you'll likely need to pay multiple months of property tax at close, differing tax rates can make a huge difference in your ultimate closing expenses.




2. Your closing date


The calendar date of your closing can actually play a significant role in determining your closing costs.


This is because you'll need to prepay mortgage interest for the remainder of the month of your closing. In fact, this is the only time throughout the life of your mortgage that you will need to prepay mortgage interest.


For this reason, it is really common for buyers and real estate attorneys alike to schedule closings as close as possible to the end of a month.


And considering that even very manageable mortgages carry high interest payments over the first few years, this could help lower your total fees by $1,000 - or even more!



3. Homeowner's associations (HOAs)


Another easy to track determinant in your closing costs is whether your new condo or home is part of a broader HOA. This tends to be more common in the south and out west, but HOA communities do exist nationwide.


Oftentimes, these communities assess HOA transfer and other related fees. Most times, it is only a few hundred dollars, but it is something to keep in mind regardless.



Closing costs in Louisiana by category


Remember - your closing costs and expenses will fall into one of three categories:


  1. Lender

  2. Title

  3. Property


Let's visit these one by one.



1. Lender fees


The first, and potentially the largest, bucket of closing expenses that you'll encounter are those fees assessed by your mortgage lender. You'll incur all sorts of different charges here, none of which will be as large as your loan origination fee, which usually costs between 0.5-1% of the loan amount.


In addition to the loan origination fee, you're also going to be financially responsible to pay the following (along with rough estimates of the charges):


  1. Application and underwriting fees

  2. Title insurance

  3. Credit reporting

  4. Prepaid mortgage interest



2. Title fees


You're also going to incur legal fees from your title company or real estate attorney.


Your lender will mandate that a title search is completed in order to assure that there are no liens, legal problems, or anybody with a legal right to the home (other than the seller/sellers).


In Louisiana, your title search will most likely cost you between $300-$1,000, though you will also need to pay recording fees to have your home deed and title updated in town/parish records where you live.



3. Property fees


Third, and finally, you're also going to need to finance other services to get the home ready for a transfer in ownership. Your lender will mandate that a home appraisal is completed to assure that they are not lending you more money than the home is intrinsically worth.


This will likely cost about $500 or so.


Other property-based fees you may encounter are:


  • Your down payment: May be anywhere between 3-20% of your home's purchase price

  • Funding an escrow account: Prepaid mortgage insurance and property taxes

  • Survey fees: To mark your property lines

  • Other miscellaneous fees


Finally, while not technically a closing cost, you'll also want to have your new home inspected to ensure that there are not costly deficiencies that you are unaware of.




3 times when high closing costs can be good


It seems crazy to consider high closing costs as a good thing. But the reality is that it can be advantageous for buyers in Louisiana and across the country if they're for one of three reasons:


  1. You have a large down payment

  2. You've opted for a lot of homeowner's insurance coverage

  3. You're closing early in a month



1. You've opted for a large down payment


While down payments are not technically a closing expense, per se, it will be included in your total estimated "cash to close," so we'll consider it here. So, large down payments will increase your closing costs, but depending on your situation, it could be a great idea.


Here's why.


Larger down payments will help keep your ongoing mortgage payments more affordable, since you've already paid "off" more of your home from the onset. If you can afford it, thirty years of lower payments could be worth coming up with more cash now.


Higher closing costs, by virtue or a larger down payment, also could leave you free from private mortgage insurance (PMI), if you're able to buy 20% of your home in cash. Not paying PMI will also lower your monthly mortgage payments.


Finally, it is advantageous because you'll build more home equity sooner. This will help you avoid having an underwater mortgage, retaining your ability to refinance even if home prices drop somewhat.



2. You've opted for a good insurance policy


Insurance can be money really well spent, particularly if you live in an area of Louisiana at risk for multiple natural disasters, like hurricanes, tornadoes, and floods.


For this reason, many home buyers opt to purchase a policy to insure their property for more than the current market value, which can be done if the financial cost of the event you're insuring is greater.


And since you'll likely need to pay an entire year's worth of premiums before you close, this can place some upward pressure on your closing costs, but for good reason.



3. You're closing early in a month


Remember - closing early in a month means that you'll owe the remainder of the month in interest, even before your first mortgage payment is due. And while this can feel like a nuance, it really isn't the end of the world, since you'll be paying this interest at some point anyway!


Still, some buyers prefer to close at the end of the month for this reason.


But all things considered, getting into your home sooner for nothing other than the interest? Not a big deal!



Times when high closing costs are bad


All closing costs are not created equally.


For this reason, there are a number of fees and expenses that you'll want to keep as low as possible. Among those fees that you should pay as little as possible for are:


  • Your title search and insurance

  • Mortgage application

  • Underwriting fees


None of these costs will materially benefit you in any way, like a large down payment can.



Louisiana closing cost assistance


To help limit the cost of these closing costs that you should minimize, you may opt to consider any of the closing cost assistance programs available to Louisiana's home buyers.


The Louisiana Housing Corporation (LHC) offers two such programs. Both programs will require you to meet specific eligibility criteria.


Your lender can help you determine if you qualify.



1. LHC Resilience Soft Second Program


Those that purchase homes in parishes impacted by LA's Great Floods of 2016 may qualify for up to $55,000 in down payment and an additional $5,000 in closing cost assistance.


Resilience Soft Second offers low interest rate mortgages through the Conventional, FHA, VA, and USDA loan programs.



2. LHC Soft Second Program


LHC's Soft Second Program is available to buyers within Hurricane Isaac designated disaster areas across the state.


It operates similarly to the Resilience program, providing up to $30,000 in down payment and an additional $5,000 in closing cost assistance, along with 30-year fixed rate mortgages through the Conventional, FHA, VA, and USDA programs.



Conclusion


As a Louisiana buyer, it is natural to seek out the lowest possible closing costs. And it makes sense for many of your expenses, like title, loan origination, application, and underwriting fees.


But having high closing costs as a result of your down payment or insurance policy may actually make life easier for you on an ongoing basis.


What do you think? Would you rather have a strong insurance policy and high down payment in exchange for protection and lower monthly mortgage payments? Tell me why or why not down below in the comments!



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About Nathan Zarcaro

Nathan Zarcaro is the founder of The Student Debt Destroyer and is passionate about personal finance related causes.  A 2018 graduate of Providence College's Liberal Arts Honors Program, Nathan studied Finance, and has worked for industry leaders in both finance and healthcare.  In his free time, Nathan enjoys playing golf and traveling with his wife Brigid.

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