Buying a home is exciting, but many first-time buyers are surprised to learn that the purchase price is not the only amount they need to budget for. In addition to the down payment, buyers are responsible for various closing costs that must typically be paid before or at the real estate closing.

One of the most common questions we hear at Peet Law Group is:

"What closing costs do Vermont buyers pay?"

The answer depends on the property, the loan, and the buyer's individual circumstances. However, understanding the types of closing costs you can expect will help you prepare financially and avoid surprises on closing day.

What Are Closing Costs?

Closing costs are the expenses associated with purchasing a home that are separate from the purchase price itself. Some are paid before the closing, while others are paid on the day of closing.

Many buyers are surprised to discover that these costs add up to more than they expected. Knowing what they are ahead of time allows you to budget appropriately and, in some cases, negotiate with the seller to help cover a portion of them.

Vermont Property Transfer Tax

One of the largest closing costs for many Vermont home buyers is the Vermont Property Transfer Tax.

This often surprises buyers relocating from other states because many states require the seller, rather than the buyer, to pay the transfer tax. Vermont is different. Unless the purchase contract provides otherwise, the buyer is generally responsible for paying the tax.

Some people jokingly refer to it as the "Welcome to Vermont" tax because it is frequently one of the largest expenses buyers encounter at closing.

Another important point is that the amount of transfer tax is not always the same. It can vary depending on how the property will be used after the purchase. Because of these rules, buyers should understand the potential tax consequences early in the transaction.

Attorney's Fees

Unlike many states where attorneys have only a limited role in a real estate transaction, Vermont real estate attorneys often provide comprehensive legal representation throughout the purchase process.

A buyer's attorney may:

• Review the purchase and sale contract.
• Conduct the title search and title examination.
• Identify and help resolve title issues.
• Coordinate with the lender, Realtors, and the seller's attorney.
• Answer legal questions throughout the transaction.
• Prepare for and conduct the closing.
• Help keep the transaction moving smoothly from contract to closing.

Many Vermont real estate attorneys, including Peet Law Group, charge a flat fee for these services. Flat-fee pricing allows buyers to ask questions throughout the transaction without worrying that every phone call or email will increase the legal bill.

Some attorneys bill by the hour. While hourly billing may seem reasonable at first, legal fees can increase significantly if unexpected issues arise during the transaction.

When comparing attorneys, buyers should consider not only the fee but also the experience, services provided, responsiveness, and overall value they receive.

Owner's Title Insurance

If you are obtaining a mortgage, your lender will almost certainly require a lender's title insurance policy to protect the lender's investment.

Buyers also have the opportunity to purchase an owner's title insurance policy to protect their own ownership interest in the property.

Although owner's title insurance is generally optional, it is one of the best values available during a real estate transaction.

When purchased at the same time as the required lender's policy, the additional cost of an owner's policy is typically modest.

The premium is paid only once at closing, yet the protection can last for as long as you or your heirs own the property.

Owner's title insurance protects against certain title problems that may not be discoverable even through a thorough title search, including certain hidden defects, errors in the public records, unknown heirs, forged documents, and other covered risks.

If a covered title problem arises, the policy not only protects your ownership interest but also helps pay the legal costs of defending or resolving the claim.

Considering that your home is likely one of your largest financial investments, owner's title insurance is often a small price to pay for significant peace of mind.

Recording Fees

After closing, various legal documents must be recorded in the town or city land records to officially document the transaction.

Recording fees are charged by the municipality for recording documents such as the deed and mortgage.

These fees are generally a relatively small part of the overall closing costs but are necessary to complete the transfer of ownership and protect the buyer's legal rights.

Prepaid Interest

Most mortgage loans require buyers to pay prepaid interest at closing.

This is not an additional fee charged by the lender. Instead, it represents the interest that accrues on the loan for the partial month before the first full month of the loan begins.

The amount varies depending on your closing date.

Property Tax Adjustments

Property tax adjustments often confuse buyers.

These adjustments simply ensure that both the buyer and seller each pay their fair share of the property taxes based on the closing date.

For example, if the seller has already paid taxes covering a period after closing, the buyer may reimburse the seller for that portion. In other situations, the seller may credit the buyer.

There may also be adjustments required if the seller qualifies for a State credit for property taxes. 

These adjustments are separate from any escrow account established by your lender.

Escrow Deposits

If your mortgage requires an escrow account, you will likely deposit money into that account at closing.

The lender uses these funds to pay future property tax bills and homeowner's insurance premiums when they become due.

Many first-time buyers mistakenly believe they are paying property taxes twice because they see both property tax adjustments and escrow deposits on the Closing Disclosure.

They are actually two different transactions:

• The property tax adjustment allocates taxes fairly between buyer and seller.
• The escrow deposit sets aside money to pay future tax and insurance bills after closing.

Homeowner's Insurance

Most lenders require buyers to have homeowner's insurance in place before closing.

The first year's premium is often paid at or before closing.

If your loan includes an escrow account, future insurance premiums may also be paid from that account.

Lender Fees

Mortgage lenders may charge various fees associated with processing and closing your loan.

These can include costs related to underwriting, loan processing, credit reports, and other financing services.

Your lender will generally provide a preliminary Closing Disclosure before closing so you have an opportunity to review the anticipated costs and ask questions before the transaction is completed.

Some figures may change slightly before the final Closing Disclosure is issued.

Expenses Often Paid Before Closing

Not every expense associated with buying a home is actually paid at the closing table.

Buyers often pay certain costs earlier in the transaction, including:

• Home inspection fees.
• Appraisal fees.
• Certain loan application fees.
• Credit report fees.
• Survey costs, if applicable.
• Home owners insurance premiums.

Although these expenses may not appear in the amount due at closing, they are still part of the overall cost of purchasing a home and should be included in your budget.

Can the Seller Help Pay Closing Costs?

Yes.

Many buyers do not realize that it may be possible to negotiate for the seller to contribute toward some of the buyer's closing costs.

In some situations, the parties may agree to increase the purchase price while providing a seller credit toward closing costs. Because mortgage lenders generally base the loan amount on the purchase price rather than allowing borrowers to simply finance closing costs directly, this approach can sometimes allow buyers to finance a larger portion of their overall investment.

This strategy is not appropriate in every transaction. Loan programs often limit the amount of seller concessions that are permitted, and the property must still appraise for the agreed purchase price.

Your lender, real estate agent, and closing attorney can help determine whether this approach is appropriate for your transaction.

Closing Costs Checklist

Expenses Often Paid Before Closing

• Home inspection
• Appraisal
• Certain loan application fees
• Credit report fees
• Home owners insurance premium

Expenses Commonly Paid at Closing

• Vermont Property Transfer Tax
• Attorney's fees
• Owner's title insurance
• Lender's title insurance (typically required by the lender)
• Recording fees
• Prepaid interest
• Property tax adjustments
• Escrow deposits for future taxes and insurance
• Various lender fees

Ongoing Expenses After Closing

• Future property tax bills
• Homeowner's insurance renewals
• Homeowners association or condominium fees, if applicable
• Mortgage payments
• Property maintenance and repairs

How Peet Law Group Helps Vermont Home Buyers

Buying a home is one of the largest financial decisions most people will ever make. Understanding your closing costs before closing day can eliminate surprises and help you make informed financial decisions.

At Peet Law Group, we guide buyers through every step of the transaction. Our experienced Vermont real estate attorneys provide contract review, conduct the title search and title examination, help resolve title issues, coordinate with the lender and Realtors, answer questions throughout the process, and conduct the closing.

We also offer competitive flat-fee pricing, allowing our clients to seek advice whenever questions arise without worrying about additional hourly legal charges.

If you are buying a home anywhere in Vermont, our team is here to help make your transaction as smooth and stress-free as possible.