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For most first-time homebuyers, the primary focus is saving up for a down payment. However, there are closing costs that one must also include in a real estate purchase.
If you are getting ready to buy your Iowa home, it is important that you determine and include closing costs in your budget. Read on to learn about closing costs in the Hawkeye State and how you can make the most of your real estate transaction.
What Are Closing Costs?
Closing costs in Iowa are a sum of fees and charges that have to be paid to different stakeholders upon the settlement of a real estate transaction. These costs are essential for finalizing your home purchase or sale and transferring ownership of the house.
“Who pays closing costs in Iowa?” Both the buyer and seller pay certain closing costs at the end of the real estate transaction.
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Components of Closing Costs in Iowa
Closing costs vary depending on your location, so it is important to ask the question, “How much are closing costs in Iowa?” and do your own research. Below, we enumerate the common closing costs for buyers and sellers.
Appraisal Fees
Appraisal fees are paid to the professional appraiser who assesses the value of the property to ensure the buyer gets the best competitive price.
The cost for home appraisal in Iowa varies between $315 and $420, depending on its geographical location, actual saleable area, and other characteristics of the property.
Loan Origination Fees
Some mortgage lenders charge buyers a loan origination fee to process the loan with other respective documentation and legal formalities. This fee usually amounts to 0.5% to 1% of the mortgage loan amount.
Title Search and Insurance
The title insurance protects the buyer against any type of loss with respect to any outstanding taxes, unpaid dues, default in the title, or any violations. In Iowa, the cost ranges from 0.5% to 1% of the home purchase price.
Property Taxes
In Iowa, property taxes typically amount to 1.29% of a home’s assessed fair market value. This rate varies depending on the county you live in. The median property tax in the state is $1,569 per year for a home worth about $122,400.
Recording Fees
Recording fees are required by state and local agencies for registering a property’s transfer of ownership, making the real estate transaction a matter of public record. The average recording fee in Iowa is $20.
Inspection Costs
Sellers in Iowa can have a home inspection done to identify any major defects and issues, like plumbing issues, water damage, and mold in the house, that must be resolved before selling. This cost is usually around $235 to $330.
Survey Fees
A land survey is performed to confirm the boundaries and location of any structures on the property. On average, the cost of a survey in Iowa can range from $400 to $800, but this may vary depending on the specific details of the property being surveyed.
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How to Estimate Closing Costs in Iowa
There are several ways you can get an idea of how much you’ll end up paying in closing costs, from using free online tools to seeking expert help from lenders and real estate agents.
Use of Online Calculators
Several closing cost calculators are available online for free, such as SmartAsset.
To get an estimate, you start by adding specific details of the property you’re buying, such as the location, home price, and down payment percentage. Then, you proceed to add the fees and charges to get the final estimated sum of closing costs.
Consulting a Mortgage Lender
Closing costs involve several fees that vary widely based on a number of factors, including your location and the value of your loan. This is why, while online calculators may be convenient, it is best to get guidance from your lender.
Once you apply for a mortgage loan, your lender will give you a loan estimate and a closing disclosure. This loan estimate will provide you with a list of all the costs of your mortgage, including closing fees, your payment, taxes, insurance, and other home-related expenses.
After you settle on a lender, they will give you a closing disclosure, which contains the items listed on your loan estimate, along with their costs and the total amount that you will need to pay at the closing.
Seeking Guidance from a Real Estate Agent
Aside from a lender, a real estate agent can be relied upon for determining an accurate estimate of your closing costs. Look for an experienced real estate agent with a solid reputation and references.
As the closing or settlement is part of your real estate journey, they are familiar with the costs involved and have access to resources and people that will allow them to provide you with realistic numbers.
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How Much Are Closing Costs in Iowa?
Homebuyers in Iowa, here’s good news for you – closing costs in the Hawkeye State are some of the lowest in the country! The average closing costs in Iowa is $1,803 for a home priced at $156,726.
Average Percentage Range
In Iowa, the closing costs for sellers are approximately 8% to 10% of the home’s agreement value, while buyers can expect to pay around 2% to 5% of the home’s purchase price.
Keep in mind, though, that closing costs will vary depending on the price of your home and the complexity of the home sale.
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Ways to Reduce Closing Costs in Iowa
If you’re a first-time homebuyer, these closing costs can be overwhelming. But don’t worry, there are a few things you can do to lower your closing costs.
Shopping Around for Lenders
The first cost-saving strategy for homebuyers is to ask for a loan estimate form from multiple lenders and compare the total costs among these companies.
Make sure you request for the legally binding loan estimate form to compare costs, not the “closing costs worksheet” or a “fee itemization” that some lenders may offer. Meticulously go over the forms and go with the lender that can offer you the least closing costs.
Ask the lenders to clarify any item that does not make sense to you. You will also be guided well by your real estate agent.
Negotiating Fees with the Seller
While there are certain closing costs that are typically paid by the buyer and the seller, there are no concrete rules on who pays for which in Iowa. This flexibility allows room for negotiation when you’re dealing with your seller, especially in a buyer’s market.
A buyer can ask the seller to pay for some or all of their closing costs in exchange for certain concessions. For example, you may offer to pay a full price on the house, and, in exchange, the seller covers a specific amount of your closing costs.
Closing at the End of the Month
Scheduling your closing for the end of the month can reduce your cash outlay at closing. Doing so reduces the number of days to which the per diem interest is applied before your first mortgage payment is due (usually on the first of each month).
Here are the steps to calculate your savings:
- Multiply your loan amount by your interest rate to get your annual interest expense.
- Divide that figure by 360 to get your daily interest charge (most lenders calculate interest using 360 days, not 365).
- Multiply that figure by the number of days left in the month plus the first day of the following month.
Essentially, if your loan is funded toward the end of the month, this figure would be much lower than if you were closing earlier in the month.
Conclusion
Closing costs can be quite overwhelming, especially for first-time homebuyers. Fortunately, having a reliable realtor by your side can make this part of your home purchase journey much easier to navigate.
If you are looking for the perfect home in Iowa, our firm is here to help you choose from all the best options available for you!
Feel free to contact Kane Powell at 515-202-4910 / kane@lakepanoramarealty.com or Dee Powell at 515-202-3312 / deepowell@lakepanoramarealty.com today so we can schedule a meeting.
Frequently Asked Questions
Why do closing costs vary among different homes?
There are several factors that affect closing costs, including your lender, the location of your home, and the characteristics of the property. This is why it is best for buyers to seek guidance from their real estate agent to get the most accurate estimates and prepare their budget for this expense.
How does Iowa compare to neighboring states in terms of closing costs?
Closing costs in Iowa are some of the lowest in the country, averaging $1,803 for a home priced at $156,726.
Can I include closing costs in my mortgage?
You may check with your lender to see if the option of adding closing costs to your home financing is available. But keep in mind that not all closing costs can be included because some must be paid upfront, such as your property taxes and homeowner’s insurance.