How Much Is Closing Cost in Alabama?

Closing costs are fees and expenses incurred during a real estate transaction, paid in addition to the property’s purchase price. These costs cover services required to transfer property ownership from a seller to a buyer. Understanding these charges is important for financial planning, as they are typically settled at closing.

Key Closing Cost Categories in Alabama

Real estate transactions in Alabama involve a range of specific closing costs, encompassing fees from lenders, title companies, and governmental entities.

Lender-Related Fees

Lender-related fees constitute a significant portion of a buyer’s closing costs, covering the administrative and processing aspects of securing a mortgage. These often include an origination fee, which compensates the lender for processing the loan application, typically around one percent of the loan amount. Borrowers also commonly encounter appraisal fees, usually ranging from $300 to $500, to determine the property’s market value, and credit report fees for assessing creditworthiness. Additional charges may involve underwriting fees for evaluating loan risk and flood certification fees to ascertain if the property is in a flood zone.

Title and Escrow Fees

Title and escrow fees ensure that the property’s title is clear and transferable. A title search is conducted to confirm legal ownership and identify any liens or encumbrances on the property. Owner’s title insurance protects the buyer from future claims against the title, while lender’s title insurance protects the mortgage lender’s interest in the property. In Alabama, it is customary for the seller to pay for the owner’s title insurance, while the buyer typically covers the lender’s policy. Legal fees for the closing attorney are also typically part of the settlement costs, as an attorney is involved in the closing process in Alabama.

Government Recording Fees

Government recording fees are charges levied by the county to officially record the new deed and mortgage documents, making the transaction a matter of public record. These fees can vary by county but generally include a base fee plus charges per page. For instance, in some counties, the recording fee can be around $16 for the first page and $3 for each additional page. Additionally, some counties may include a mental health fee as part of the recording costs.

Alabama Taxes

Alabama imposes specific taxes on real estate transactions. The Mortgage Tax, outlined in Code of Alabama Section 40-22-2, is levied at a rate of $0.15 for every $100 of indebtedness secured by the mortgage. This tax is paid when the mortgage is recorded. The Deed Tax, referenced in Code of Alabama Section 40-22-1, applies to the transfer of real property and is $0.50 for every $500 or fraction thereof of the property’s value. This deed tax is often referred to as a transfer tax or documentary stamp tax.

Prepaid Items

Certain prepaid items are also typically collected at closing. These include prorated property taxes, covering the portion of the current year’s taxes that the buyer will owe from the closing date onward. Homeowner’s insurance premiums for the first year are often paid in advance to ensure the property is immediately covered. If the property is part of a homeowners’ association, prepaid HOA dues may also be collected.

Other Potential Fees

Other potential fees might arise depending on the specific property and transaction. A survey fee may be necessary to confirm property boundaries, typically ranging from $300 to $500. Pest inspection fees, often related to a termite bond, ensure the property is free from infestation. Any additional services requested from the closing attorney beyond standard procedures would also incur specific fees.

Determining Your Alabama Closing Costs

The total amount of closing costs in Alabama is influenced by several factors, and the allocation of these expenses between the buyer and seller is often a point of negotiation.

Allocation of Closing Costs

The typical allocation of closing costs in Alabama sees both buyers and sellers bearing certain expenses. Buyers generally pay the majority of lender-related fees, such as loan origination, appraisal, and credit report charges. Sellers, on the other hand, commonly cover real estate commissions and the owner’s title insurance policy, though the latter can be subject to negotiation. The specific division of costs is ultimately determined by the purchase agreement between the parties.

Factors Influencing Cost

Several factors can significantly influence the overall cost. The purchase price of the home directly impacts taxes and fees calculated as a percentage of the sale amount. The loan amount and type of loan, such as FHA, VA, or conventional, can also affect lender fees and associated requirements. Specific county or city regulations may lead to variations in local taxes or recording fees. Furthermore, the outcome of negotiations between the buyer and seller plays a substantial role in the final distribution of expenses.

Loan Estimate and Closing Disclosure

Two official documents provide estimates and final figures for closing costs: the Loan Estimate (LE) and the Closing Disclosure (CD). The Loan Estimate is an initial estimate provided by the lender within three business days of a mortgage application. It outlines the estimated loan terms and closing costs, allowing buyers to compare loan offers. The Closing Disclosure is a comprehensive, itemized statement of all final loan terms and closing costs. It is provided to the buyer by the lender at least three business days before the scheduled closing date.

Finalizing Your Closing Cost Figures

The final stage of a real estate transaction involves a careful review of all financial details before the transfer of ownership. This process ensures clarity and accuracy regarding the amounts due at closing.

Reviewing the Closing Disclosure

Receiving and thoroughly reviewing the Closing Disclosure (CD) is a step in the closing process. Lenders are required to provide this five-page document at least three business days before the scheduled closing. This waiting period allows ample time for the buyer to examine all final loan terms and closing costs and identify any potential discrepancies or unexpected charges.

Comparing CD to LE

Comparing the Closing Disclosure to the initial Loan Estimate is part of this review. Buyers should check for any significant changes in fees and terms. While minor variations are permissible, certain lender fees cannot increase beyond specific tolerances from the Loan Estimate to the Closing Disclosure. If the Annual Percentage Rate (APR) changes significantly, a prepayment penalty is added, or the loan product changes, a new three-business-day waiting period is triggered.

“Cash to Close” Figure

Understanding the “Cash to Close” figure on the Closing Disclosure is important. This figure represents the total funds the buyer needs to bring to closing. It includes the down payment, all buyer-paid closing costs, and any prepaid items, minus any earnest money deposits or credits received. This final sum is itemized on the disclosure.

Closing Attorney or Agent Role

The closing attorney or agent plays a role in presenting and explaining the final figures at closing. They facilitate the signing of all necessary documents and address any remaining questions. Their involvement ensures all parties understand the commitments. Final actions at closing involve signing numerous legal documents, after which funds for closing costs are disbursed, finalizing the real estate purchase.