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Virginia is consistently ranked among the top states in America to live in. Proximity to the nation's capital, beautiful coastline, and beautiful rural areas are just some of the things that make Virginia unique.
With so much going for it, real estate can be very pricy. And for first time homebuyers trying to save up for a down payment in Virginia, it is important to factor in the additional expense of closing costs.
Virginia closing costs
Closing costs in Virginia average about 2% of the home purchase price (including taxes), according to Bankrate. Within this percentage are expenses like real estate taxes, loan origination fees, lender fees and title charges.
This means that, if you purchase a $400,000 home in Virginia, you can expect to pay between $8,000 and $20,000 in closing costs, a hefty sum of money. And depending on your loan structure, home location, and other factors, there could potentially be other miscellaneous fees on top of this.
According to Rocket Mortgage, the average Virginia house closing costs $6,186, including taxes. But this number can vary greatly by county and town. Generally, Northern Virginia and the suburbs of Washington D.C. may exceed this average, while western and southern counties in the state may come in a little cheaper.
Related: A first-time home buyer guide
What government taxes are included in your Virginia closing?
When you purchase a home in Virginia, you are subject to two taxes that will be included in your closing costs. They are:
Property taxes in Virginia
Property taxes are paid in advance of six-month cycles in Virginia, with your biannual bills due in July and December. So in July, taxes will be due for the second half of the year, and in December, your property taxes will come due for the first half of the following year.
Since taxes in Virginia are prepaid, if you close on a house in the middle of a cycle, you'll be charged the remainder of that period, which will then be used to reimburse the seller.
For example, if you close on April 30th, you'll need to pay property taxes for May and June when you close.
Virginia transfer tax
Like most other states across the nation, Virginia assesses real estate transfer taxes to the tune of around 0.10% of the home purchase price. This tax is assessed to transfer the title of a home to a new owner (the buyer). For a $400,000 home, you'll be taxed $400.
Technically, state law allows this tax rate to be within the range 0.03% and 0.15%, depending on the home's sale price. It is also possible that some counties or towns may levy their own tax in addition to the state.
Closing cost expenses in Virginia
It's important to draw a distinction between your closing cost amount and the amount of money that you will actually be responsible for upon closing. And while this may seem confusing, the best way to keep this straight is to just remember that there are other expenses you'll need to be prepared for other than just closing related items.
As it pertains to your costs to get into your new house, your total "closing costs" will likely consist of four major categories:
Your down payment
Actual closing costs
Other fees and expenses
1. Your down payment - 10% - 20%
The first (and likely largest) expense you'll cover around the time you close is your down payment. FHA loans may allow you to get into a house with as little as 3.5% down, but it is more common to save up a down payment between 10% and 20% of the home's purchase price.
20% down will save you some money monthly, as you'll avoid private mortgage insurance (PMI) costs, but it is not usually that costly anyway.
2. Establishing an escrow account
Escrow accounts are account held by your mortgage lender, and are used to hold funds to pay things like our homeowner's insurance and property taxes. Most lenders require:
A one-year homeowner's insurance policy paid before closing (usually a prepaid item)
At least three months of property taxes
The bank then holds these funds in reserve.
Then, on an ongoing basis, you may opt to make these payments as part of your monthly mortgage. It will then be the bank's responsibility to pay your taxes and insurance bills.
Generally, you don't want to think of these solely as expenses, since you will be refunded the remaining balance in the event that you sell your home. By for all intents and purposes of your weekly or monthly cash flow, the money will not be accessible by you.
In Virginia, you can expect your homeowner's insurance, property taxes, and the first month's prepaid interest to be about somewhere around 0.75% of the home's purchase price. So on a $300,000 home, it would be wise to allocate about $2000 - $2500 beyond your down payment savings.
This can vary greatly state by state, since it is based on the real estate taxes in the state and community where you live.
3. Conventional closing costs
These are the expenses that are more directly tied to the actual closing event. You'll notice that many of them are lender fees, but some are also based on third-party involvement in the process.
You'll be on the hook for the following (note that you may pay all of these expenses at closing, but may also pay your appraisal and home inspection fees when they arise before closing):
Mortgage application fee - $0-$500, depending on your lender
Bank underwriting fee - $400-$900, depending on your lender
Title insurance - 0.5%-1% of the home's sale price
Attorney fees, including title searches - $500-$2,000, but around $1,000-$1,500 is standard
Loan origination fees - 0.5%-1% of the loan amount
In Virginia, you can generally expect to pay about $2,000 for these fees, plus the loan origination fee and title insurance, which are property specific.
4. Other fees and inspections
As you complete the purchase of purchasing your home, you'll undoubtedly encounter additional fees along the way. Most home purchases will require flood certifications (around $20), as well as things like credit reporting charges (less than $50) and more.
How to lower your closing costs in Virginia
Becoming a homeowner takes a lot of time, planning, and diligent savings. And while it is great to have that down payment ready to go, there is more financial investment required to actually transfer the home to your ownership.
Here are a few things that you can do to get the most bang for your buck and lower your closing costs.
1. Buy in an area with cheaper real estate taxes
One of the largest chunks of money you'll part with closing day will be to establish the property tax component of your escrow account. So naturally, if you're looking to lessen this expense, you'll center your home search in a lower tax area, since rates in Virginia are set at the county level.
At the time of writing, the cheapest average effective property tax rate in Virginia was in Northumberland County, with a rate of 0.44%, while the most expensive was Portsmouth City, at 1.25%. This makes a huge difference when talking about a multi hundred-thousand-dollar home.
2. Close near the end of the month
When you close, you'll prepay mortgage interest for the remainder of the month. By closing near the last day of the month, you'll only pay for a couple days, as opposed to closing on the 1st of the month and needing to make 30 days of interest payments for a home that you may or may not even have moved into yet.
Your lender and attorney are well-versed in this, so it should not be a problem.
3. Negotiate and shop services
There are items, like the title search, that must be completed for your loan to close from your lender. But they don't mandate who you have to work with. Make a list of a few different attorneys, inspectors, and other third parties, and get quotes before you agree to having the work performed.
Another common option is to try to negotiate with the seller to have them pay some or all of your closing costs. You'll never know until you ask.
Virginia is a beautiful state with lots to offer. It's real estate market also has lots to offer and can vary greatly from one end of the state to another.
Use this article as a guide to help you navigate the homebuying and closing process.
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