Closing costs on Kauai and across the US are inevitable. Most people are only vaguely familiar with home-buying and home-selling expenses. Closing costs are, after all, the biggest upfront expense for buyers after the down payment. It pays – literally – to understand them.
So do you really know everything that makes up the closing costs and how much Kauai closing costs can actually be?
Read on so that you won’t be taken by surprise at closing and can prepare accordingly.
Closing Costs in Kauai and Hawaii
The first thing to be aware of concerning Kauai closing costs is that in Hawaii you’ll pay more. “The average closing cost in Hawaii is $6,746 after taxes, or approximately 0.96% to 1.12% of the final home sale price.”
Statewide, the average sale price for homes is $600,000 to $700,000, and that means the average expense for closing falls between $5,782 and $7,870 – which is indeed nothing to sneeze at. In addition, “[b]uyers and sellers in Hawaii pay an average of $1,358 in tax combined for the closing. This accounts for 20.13% of the total average closing cost in Hawaii.”
Still, these costs can vary. Your total cost for closing will depend on several variables, including your particular lender, the size of the mortgage loan, the property’s location, and how much cold hard cash is involved.
What Are Closing Costs?
But just what exactly do closing costs in general and closing costing costs on Kauai in particular comprise?
Generally speaking, “[c]losing costs are the thousands of dollars in fees associated with a mortgage, typically amounting to 2 percent to 5 percent of the loan principal. There are various closing cost components and they vary from state to state. Some closing-related items can be negotiated by the borrower.”
As we mentioned, exactly how much you’ll have to pay varies and is determined by several factors. But to help you know what to expect, “[t]he average total for closing costs on single-family homes in the U.S. in 2019 was $5,749, including taxes.”
Closing expenses typically fall into two broad categories: 1) property-related fees and 2) mortgage-related fees.
These “cover expenses your lender incurs in evaluating the property you’re financing” and include . . .
- Appraisal fee
- Inspection fee
- Title search
- Title insurance
These fees “cover the cost of processing your application” and include . . .
- Credit report fee
- Origination fee
- Application fee
- Underwriting fee
- Local fees
- Legal fees
Costs for Buyers
The bulk of Kauai closing costs for buyers are typically those related to the mortgage. These are . . .
- Title insurance – Protects the buyer in case liens or clouds are found or placed on the property subsequent to the sale, typically in Hawaii 60% paid by the seller and 40% by the buyer
- Mortgage preparation – Fees paid to the lender for generating and drafting the mortgage loan
- Buyer’s consents – Includes things like inspections
- Homeowners insurance – A certain portion of premiums to be paid at closing
- Notary fees – Charge when closing documents are signed somewhere other than an escrow office
- Government recording fees – For deed and mortgage recording at the appropriate Bureau of Conveyances
- Escrow and title document preparation fees – Typically split 50/50 by buyer and seller
- HOA dues – Standardly, two months’ worth of prepaid dues
Costs for Sellers
Closing costs in Kauai for sellers typically include . . .
- Mortgage loan payoff – To be paid off in full at the closing settlement
- Agent commissions – Usually paid by seller, but buyer often pays too
- Transfer taxes/recording fees – Imposed by state/local government for transferring title
- Escrow fees – Paid to the title company for performing the title search and preparing documents
- Attorney – Fees paid for legal representation at the settlement
- Survey fees – Typically for single-family dwellings to verify boundaries and determine whether there are encroachments
- Liens/judgments – Usually in the form of unpaid HOA dues and/or prorated property taxes and included in the settlement fees.
The Good News
Now, whether you’re a buyer or a seller, if that sounds like a lot to be paid, well, it is. But the good news is that some Kauai closing costs can be avoided and others can be negotiated.
First, if you’re a buyer, be sure to shop lenders because they are not all created equal. “Shop mortgage lenders to compare these fees, some of which vary by lender . . . Many fees are not set in stone and the lender has some latitude to adjust them, but you’ll need to ask about each one individually . . . If a fee isn’t clear, ask the lender what it covers specifically and if it doesn’t make sense, ask for the fee to be waived.”
Traditionally, most of the fees associated with closing are paid by the buyer and the rest by the seller. But this arrangement isn’t set in stone either. The fees and who pays the fees can be negotiated.
“Many buyers believe the only fee that sellers ever pay is the broker’s commission, but savvy real estate shoppers can sometimes negotiate some of the other costs into the seller’s corner. It’s not unusual for buyers to persuade sellers to share some expenses that are paid in advance, including tax and insurance escrow deposits, flood and hazard insurance premiums, property taxes and per-diem interest.”
And if the seller had an urgent need to sell – for example, needing to sell fast because of a job relocation – a buyer has even more negotiating leverage. In this case, the seller may be willing to assume more to the buyer’s costs. And the same goes for a strong buyer’s market: “the seller may be more willing to pay more of the buyer’s closing costs than they otherwise would.”
A Final Caveat for Buyers
As a buyer, in order to avoid any surprises when it comes to Kauai closing costs, you should carefully go over your Loan Estimate.
“Once you submit a mortgage application, your lender is required by law to give you a Loan Estimate (LE) within a few days. If you have questions or something doesn’t add up in your LE, ask your lender or attorney right away. . . . Prior to closing your loan, you’ll receive your final Closing Disclosure listing your closing costs. Be sure to compare your Closing Disclosure to the LE you received when you applied for your loan.”
And, of course, be sure to consult your local Kauai real estate agent.