Pristine landscapes and the great outdoors, freshly brewed beer and cider, and a bustling economy, we have got plenty of reasons why it is worth moving to Vermont. But if you are a homebuyer heading to this New England state, make sure you are saving up for closing costs.
Homebuyers often fixate on saving for a down payment and securing a home loan but end up overlooking closing costs. In a nutshell, closing costs are all the administrative and legal services you must pay before you receive the keys to your new home. Think of all the helping hands involved in your homebuying journey: there is your lender, attorney, appraiser, home inspector, and the taxman, for starters. Instead of paying each service provider one-by-one, these expenses are cobbled together and paid on closing day alongside your down payment. All in, count on closing costs amounting to about 2 to 5 percent of a home’s purchase price.
If you are buying a new home in Vermont, NewHomeSource has put together the following guide on how much you should be saving for closing costs, a breakdown of what is generally included and how you can potentially lower them.
How Much Are Closing Costs in Vermont?
Closing costs in Vermont run, on average, $3,500 excluding taxes for an average home loan of $306,703, according to an article by the National Association of Realtors. Those figures put Vermont smack dab upper half of the states on closing costs.
Vermont has cheaper closing costs than its New England neighbors, though: Connecticut has closing costs of about $4,108 while Massachusetts’ closing costs clock in at $4,904. Its other bordering state, New York, is $6,168.
But homebuyers in Vermont should plan on spending far more than this initial estimate. That is because this data excludes two major costs you are bound to come across, loan origination fees if you need to take out a mortgage, and private mortgage insurance if you have a down payment of less than 20 percent. Both can add thousands to your closing costs tab.
Home prices have also crept up in Vermont: in 2023, the average median sales price was $325,000, a 5 percent increase from the year before and a 11 percent increase for prices on newly constructed homes coming in at $616,500, Vermont Housing Finance Agency.
Keep in mind that closing costs can fluctuate greatly depending on the price of your home, its location, and the complexity of the sale.
What Is Typically Included in Vermont’s Closing Costs?
The easiest way to keep track of your closing costs tab is to group your fees into three fee categories: mortgage-related, property-related, and annual recurring expenses.
Each state also has its own set of regulations you will need to follow, from real estate transfer taxes to hiring an attorney. Here’s what to expect in Vermont:
Mortgage-Related Fees
The following are the closing cost fees you will incur for securing a mortgage, including the protocol for hiring an attorney.
Loan Origination Fees
If you are buying your home with the help of a mortgage, expect to spend about 0.5 percent to 1 percent of your home loan amount on loan origination fees, right off the bat.
Whether you are working with a bank or mortgage broker, they will charge you this initial fee to set up your home loan application. But this will include everything from underwriting your loan to providing preapproval letters for your house hunting to processing your funding.
Credit Report Fees
Before your lender offers you a home loan, they will need to conduct a full credit check to make sure you are a responsible borrower. They will pull your credit report from the various credit reporting bureaus, like Equifax and TransUnion, for an in-depth look at how you have managed debt over the past few years.
Expect your lender to pass on the cost of requesting your credit report to you. If more than one borrower is listed on the mortgage application, you will need to double this cost.
Private Mortgage Insurance
If you are not providing a 20 percent down payment, your lender will expect you to buy private mortgage insurance, or PMI. PMI allows borrowers to qualify for a conventional loan even if they put down five to 19.99 percent of their mortgage. The coverage protects your lender in case of loan default.
PMI typically ranges from 0.25 percent to 2.25 percent of your outstanding loan balance, depending on the size of your down payment and credit score.
Attorney Fees
Attorneys handle closings in the Green Mountain State. This is a mandatory clause outlined by the state’s Bar Association. Vermont is one of about a dozen or so states that insist on real estate lawyers managing closings. The association lists a handful of rules buyers and sellers must follow. For example, both parties cannot use the same attorney to represent their interests. However, they can accept the help of a paralegal on behalf of a supervising attorney.
You can rely on your attorney to help with the legal aspects of your home purchase, from drafting your purchase agreement, certifying deeds, and reviewing your title examination and title insurance policy.
Attorney fees will vary, depending on where you are in the state and what you need your lawyer to do. Some lawyers may charge you by the hour while others may have a flat fee to retain their counsel throughout your homebuying journey.
Property-Related Fees
Before you can close on your new home, you will need to do your due diligence to make sure you are buying a worthy investment. Here are some common property-related fees:
Title Search
A key purchase in the homebuying process is the title examination. In this case, a title search involves reviewing historical records like deeds, court records, property indexes, and other record-keeping to ensure the seller’s right to transfer ownership. The last thing you want is to buy a home only to inherit a legal issue over ownership or other problems like unpaid taxes, judgments, or ongoing lawsuits.
You will need to pay for this step whether you are buying a brand-new build or an existing home.
Title Insurance
Once the title search is complete, you will need to purchase two title insurance policies – an owner’s policy for you, and a lender’s policy. Title insurance protects both parties in case of “defects in title,” which is when something is missed during the title search or there are claims on the property. This may come in the form of errors in recording legal documents, forgery and fraud, and even undisclosed or missing heirs.
This is a one-time expense, so the insurance applies for as long as you are the homeowner.Buyers pick up the cost for both premiums.
Appraisal
Another checkpoint you will need to clear before your lender agrees to fund your home loan is the appraisal. Your lender will send a third-party appraiser to your new home to make sure it is priced at the right value. If you default on your mortgage, your lender needs to know they can sell the property if it goes into foreclosure to make up the outstanding balance.
The appraiser’s job is to evaluate the home’s size and condition and compare how it stacks up to similarly priced homes in the community. While your lender calls the shots on the appraiser, you are billed for this expense.
Home Inspection
Hire a professional home inspector to evaluate the health and safety of your potential new home, from the foundation to the roof and everything in between. Pay close attention to your home inspector’s feedback. They will point out any existing issues as well as ones that could surface in the coming years, such as needing to replace major appliances or an aging roof. This is great intel because you can negotiate with the seller regarding any fixes before finalizing the deal.
Real Estate Transfer Tax
Transfer taxes are local and state government taxes that are paid as the seller transfers the home to the buyer. They could be listed as a deed tax or stamp tax on your closing costs bill.
In Vermont, the transfer tax rate laws changed in August 2024, the general tax rate remains at 1.25 percent. The Clean Water Surcharge Rate increased to 0.22 percent according to the state’s Department of Taxes.
Annual Fees
You have got your mortgage, utility bills, property taxes. Homeownership is all about managing recurring expenses. The annual fees start cropping up with these closing cost expenses:
Property Taxes
In Vermont, property taxes are roughly 1.56 percent of a property’s assessed fair market value, according to the tax policy non-profit, Tax Foundation. The rate will vary depending on the county where you live.
Property taxes are a prepaid expense, meaning it cannot be rolled into your home financing.
Homeowner’s Insurance
Home insurance is a mandatory purchase you must make before your lender agrees to transfer your home loan. This is another prepaid expense. It is crucial to have your home insurance policy in effect by the time you take ownership because it covers any physical damage to your home caused by fire, wind, vandalism, or theft.
You may need to buy additional policies in case of extreme weather, like blizzards, or if you have expensive art of family heirlooms you will keep in your home.
Homeowner’s Association
With about 46 percent of homeowners in Vermont part of a homeowner’s association (HOA), it is worth double-checking to see if your new home comes with this annual expense.
HOA fees cover the cost of community amenities, such as fitness centers, pools, and parks. They also may cover expenses to keep your neighborhood running, from trash removal to security.
How Can I Lower My Closing Costs in Vermont?
Between saving for a down payment and new furniture, you may be looking for ways to lower your closing costs. Here are some key strategies to consider:
Closing Cost Assistance
Homebuyers should take advantage of Vermont’s homeownership assistance programs to put a significant dent in their closing costs.
Start by connecting with the Vermont Housing Finance Agency, it has a series of programs that provide lower mortgage insurance premiums, home loans with competitive interest rates, and down payment and closing cost assistance. You will need to meet eligibility criteria, such as being an income-eligible first-time homebuyer. Look into regional homeownership programs, too.
Get Your Finances in Shape
Before you shop for a home loan, it is worth getting your finances in order. This strategy could help you secure a lower interest rate, which would save you thousands in interest over the lifetime of your mortgage. Pay off your debts, do not miss any payments on your bills, and steer clear of applying for more credit.
Save as much as you can for your down payment, too. The closer you get to the 20 percent down payment threshold, the less you will have to pay in PMI.
Comparison Shop
Do not scoop up the first deal you see, whether you are shopping for a home loan, a home inspector, lender, or a title company. Shop around, obtain quotes from service providers, and take stock of referrals from your real estate agent, family, and friends. Comparison shopping will help you secure the best deal for your specific needs.
Seller Concessions
During negotiations on the home sale, you may be able to reassign some of your closing costs to the seller, especially if you are in a buyer’s market.
You could, for example, ask the seller to pay for some of your closing costs if you offer to submit a full price offer on their home. If you are buying a fixer-upper, you could ask the seller to pick up your closing costs tab in exchange for the repairs you may need to make.
No-Closing-Cost Mortgages
With a “no-closing-cost” mortgage, your lender agrees to pay part or all your closing costs while you pay a higher interest rate on your mortgage. Run some calculations before you decide that this is the best route for your bottom line. In the long run, this could cost you more money because of the bump in your interest rate.
Adding Closing Costs to Your Home Financing
Homebuyers who cannot come up with the cash for their closing costs may opt to roll this expense into their home loan. While this may be a convenient way around paying for closing costs upfront, you will pay interest across the life of the loan, so be sure this is an acceptable trade-off.
Carmen Chai
Carmen Chai is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. For NewHomeSource, Carmen covers a variety of topics, including insurance, mortgages, and more.