Due to Covid19, most people are stuck at home with plenty of time to spend online. If you’re like many of our clients, you have a dream to purchase an island home! After weeks of browsing the internet, when you finally find the perfect island oasis, a million questions start running through your head. That’s where we come in!!
You then call your Realtor and start discussing possible offers and a number of other important topics. When you and your realtor finally have the “closing costs” discussion, it is important to fully understand what you will be expected to pay for when purchasing a home here in St. Croix. This is something very important for both buyer and sellers to be aware of. Closing costs or “cash needed to close” are essentially the fees associated with your purchase. They are typically a little higher in the USVI compared to the states for a number of reasons but we don’t want anyone to become discouraged. If you are informed and educated about this process from the get go, there should be no surprises when it comes to the closing table.
Remember, if you plan to finance a property, your lender will help pre-qualify you. This will help you better understand your budget and what price range you are most comfortable with. The lender along with us realtors will help break down the “out-of-pocket” closing costs you can expect to incur. Each transaction is different, so please keep that in mind. Depending on the individual property, whether you pay cash, whether you finance and the type of loan you will use, the costs will vary. We help break it down below!
“Cash to Close”
There is no exact “golden number” here, but a good rule of thumb is 10% down. Yes, we realize that is higher than the states, but if you want to submit a strong offer, you must understand that the sellers will be expecting around 10% of the purchase price down as earnest money.
This shows sellers you are a serious buyer and normally less likely to default while under contract. Let’s say you submit an offer with only $1,000 down. Your offer gets accepted and you’re under contract. Things are rolling and one month later a house gets listed that you absolutely love and you want out of the current deal. You decide to get out of the deal, because $1,000 really isn’t that much to you. Not only have you ended the contract, the seller had to essentially take the house off of the market for a month, and now they are back to square one because you changed your mind. You might not walk away if there was more at stake for you.
The earnest money is usually due after both parties have signed the contract and will go towards your down payment or the total amount owed at closing. The funds are held in an escrow account in the meantime. Each contract will specify certain terms, but if you have an “inspection period” as part of your offer, then you can typically get out of the contract and have your earnest money returned if you have problems with the inspection report within a certain period. That leads us to our next “closing cost”- inspections!
Home inspections are surprisingly not mandatory for lenders, but it is ALWAYS a good idea to schedule a home inspection. This is a great way to find out what you’re getting into while purchasing a home. Depending on whether you have a condo or home inspected and whether the electricity is on at the home, the cost varies from $400-$700. If the power is off, the inspector will have to bring their own generator which typically costs extra.
There are several great inspectors to choose from on island. Just ask your agent for inspector suggestions.
Appraisals are always required for financing and many times cash buyers also want a property appraised to see if what they’re paying makes the most sense. Most single-family home appraisals run around $1000-$1200. Unfortunately, the turnaround time for an appraisal from when it’s ordered and then returned to the lender can vary, taking as little as a few weeks, to a couple of months.
Whether you are financing or not, it’s always a good idea to get a survey of a property. There are several surveyors on island to choose from that offer an array of options. “As built” “Boundary” and “Topographical” surveys to name a few, are usually the most commonly requested. It can show you the boundaries, any encroachments, easements, rights of ways, underground utilities and more. Depending on the size, whether the lot is vacant, flat or very steep and harder to survey, those factors can all play into what a surveyor will charge. For a half acre single family home, the survey will cost around $1000.
Real Estate Attorney-
This is a very necessary closing cost because the attorneys here in the USVI conduct the closings themselves. In the states, a title company usually would be responsible for the closing, but in the USVI, a buyer and seller each have their own attorney representing them.
The attorneys have a number of important jobs, from doing the title search and handling any title issues that may arise, assisting with title insurance, obtaining tax information and a tax clearance record, recording the deed, and of course working for you with your best interests in mind. The attorney is always in communications with your lender, the other attorney and the realtors. There are a lot of moving parts in a transaction and an attorney is always recommended for both buyers and sellers. Many times the “easiest” deals turn into the hardest ones and it is always beneficial to have an attorney on your side.
Attorneys typically charge $1500-$2500 for their services. That can of course increase depending on whether or not there are any unexpected problems along the way.
This is a big shock to many buyers that finance. You’re typically required to pay your first years insurance premium up-front. Yes, up front and paid at closing. A good rule of thumb to estimate what that will cost you is to multiply the purchase price by 2%. If you are purchasing a $400,000 home, then insurance will probably cost you around $8000 for the year, due at closing.
That’s the bulk of the closing costs for buyers in a nutshell. Keep in mind, every deal is different! As real estate agents, we are here to help guide you through this process and make it as stress free as possible!