Whether you are a first-time home buyer or not, buying a home is an exciting and significant decision. But before you dive into buying new furniture or appliances, you need to budget for closing costs.
Closing costs are taxes and fees associated with the sale of a home, such as title insurance and loan fees. Don’t worry if you feel unprepared or overwhelmed. To help you budget for closing costs, this Redfin article will explain how much closing costs are in Alabama, who pays them, and what you, the buyer and seller, can expect to pay.
What are the closing costs in Alabama?
Homebuyers need to pay closing costs before getting the keys to their new home. On average, closing costs in Alabama are approximately 2%-5% of the home purchase price. However, keep in mind that the closing cost amount depends on a variety 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 buy a home in Hoover, where the average sales price is $424,500, closing costs could range from $8,490 to $21,225. Or, let’s say you’re currently renting in Birmingham and want to buy a home here, where the median sales price is $199,150. Closing costs for a home in Birmingham can range from $3,983 to $9,958.
Who Pays Closing Costs in Alabama?
Typically both the buyer and seller pay closing costs. But buyers and sellers will pay different closing costs and may have different total closing cost amounts. Another thing to remember is that buyers typically pay closing costs out of pocket, while sellers’ closing costs are typically deducted from the home sale proceeds.
Alabama buyer closing costs
For home buyers in Alabama, you can expect to pay 2%-5% of the purchase price of the home. If you pay a security deposit (usually 1%-3% of the home price), this amount will be deducted from your closing costs. Let’s take a closer look at some common closing costs that buyers pay:
- Assessment fee: Home appraisals typically range from $300 to $500 and are usually paid separately at the time of service. However, if not, you will need to pay a fee at closing.
- Inspection fees: Although not required, a home inspection is highly recommended. The cost of a home inspection generally ranges from $300 to $500 and is usually paid at the time of service. However, if not, payment will be required at closing.
- Loan origination fee: Your lender may charge a fee to create your loan. It’s important to understand what this fee covers and whether it can be negotiated to avoid high fees.
- Loan processing fee: Lenders may also charge fees for loan processing, including underwriting and related services. Similar to the origination fee, check with your lender to understand its purpose and possible exemptions.
- Loan discount points: If you purchase discount points to lower your interest rate, you’ll pay a one-time fee at closing. These points can lower your rates by 0.25% to 0.5%, but consider your long-term homeownership plans before paying the reduced rate.
- Private Mortgage Insurance (PMI): When your down payment is less than 20%, you usually have to pay PMI. Some loans allow PMI to be paid upfront at closing, giving you the option of a higher upfront cost or increased monthly payments.
- Title Insurance: Title insurance is a one-time closing cost, and the buyer usually pays for both the lender and the owner’s policy.
- Home Insurance: Your annual home insurance premium may be included in your closing costs in Alabama.
- Homeowners Association Dues: If your property is part of a homeowners association, you may be required to pay one month’s dues up front at closing. These fees vary and add to maintenance and operating costs.
- property tax: As part of your Alabama closing costs, you may be required to prepay a portion of your property taxes at closing.
Alabama Seller Closing Costs
Closing costs borne by sellers in Alabama can vary, but here are some common fees and costs borne 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 an agent.
- Homeowners Association Fees: If the property is part of a homeowners association, the seller is generally responsible for settling any unpaid HOA fees or assessments as of the closing date. Additionally, the seller may be required to provide certain HOA documents to the buyer as part of the sale.
- property tax: Any outstanding property taxes will be due at this time. However, if the seller prepaid property taxes after the closing date, they may receive a refund for the portion that was paid but will not be used.
- Title Insurance: Owner’s title insurance is another common closing cost paid by the seller in Alabama.
- Transfer tax: In Alabama, the seller is responsible for paying state taxes and possible local transfer taxes. These taxes are usually a percentage of the property’s sales price and vary widely by jurisdiction.
Median home sales price data from the Redfin Data Center for July 2024.
