Overview of New Jersey Housing Market
Buying – and owning – a home in New Jersey is expensive. New Jersey homebuyers can expect to pay the highest effective property taxes in the country. The state also has some of the highest foreclosure rates in the United States.
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Factors in Your New Jersey Mortgage Payment
There are a number of additional expenses to add on top of your mortgage principal and interest payments. The two biggest considerations are property taxes and insurance. Property taxes in New Jersey are the highest out of all 50 states. While the national average effective tax rate is about 1.19% of your home’s value, New Jersey’s rates hover near 2.19%. Most property values are pretty high in this Northeastern state, which means correspondingly larger tax burdens. Overall, the average annual property tax bill paid in New Jersey is about $7,000.
Each municipality in New Jersey has its own tax rates. The state doesn’t collect any of the property taxes; everything that homeowners pay goes directly to local governments. If you own a home in the Garden State, your property’s value is determined by a local assessor. Once that’s determined, New Jersey’s Division of Taxation adds an equalization ratio to ensure that the value is fair and that everyone pays a fair share.
Taxes vary between counties and cities more than you might think. Each school district levies taxes as well as the municipality and county. An example of disparate taxes across the state is Cape May County’s effective tax rate of 1.31% compared to Camden County’s at 2.94%.
While taxes are high, there are a few property tax relief programs, including a deduction for senior citizens, disabled persons, veterans, tax freeze for seniors and the homestead benefit program. The homestead benefit program is for those with income under a certain amount and the deduction is calculated per eligible property. The New Jersey Department of the Treasury has information on each program on its Division of Taxation website.
Fortunately, homeowners insurance is less of a burden in New Jersey than its property taxes. The state ranks 17th-most expensive for insurance in the U.S. based on our Most Affordable Places to Live study, with an average annual premium of $1,300. However, if you’re looking at a coastal property, which constitutes about 34% of all insured properties in New Jersey, you’ll need to add flood insurance on top of your normal homeowners insurance. Most of New Jersey’s coastline is susceptible to storm surges, so you’ll want to keep that in mind when you’re considering your coverage options. Flood insurance is covered by the National Flood Insurance Program.
Another element to keep in mind is hurricane damage in New Jersey. In 2012, Hurricane Sandy caused $6.3 billion in private insurance losses in New Jersey. If you buy in this state, you’ll want to shop around for insurance that will cover your property under a number of adverse conditions. Another hurricane is always a possibility, so you’ll want to make sure your property’s covered.
If you can’t obtain insurance through a private company, you can apply for coverage through the New Jersey Insurance Underwriting Association (NJIUA). NJIUA’s mission “is to provide essential property insurance to applicants who cannot secure coverage in the voluntary market.” Since it’s considered a last-resort market, the entity doesn’t seek customers and provides basic coverage only.
Costs to Expect When Buying a Home in New Jersey
One thing to consider when buying a home in New Jersey are costs that will only occur during the initial home-buying and closing phase. When you find a property you’d like to buy, one of the first things you’ll need to arrange is a home inspection. National averages for home inspections are around $323, but in New Jersey you can expect to pay closer to $450 for a single family home. Most home inspections don’t include additional testing. You’ll have to request for additional tests such as termite inspections, mold and other potential home hazards. It’s the buyer’s responsibility to arrange and pay for any additional inspections. Add-on tests will cost you around $85 and up. Usually your primary home inspector will offer those services as additional options to a home inspection, but that’s not always the case. One last consideration is that you should check to see if the property is in one of New Jersey’s radon high potential areas. Even if the home isn’t in a tier 1 location, New Jersey’s Department of Environmental Protection recommends testing all homes for radon concentrations.
Once it’s time for closing, you’ll have to pay a number of fees to different entities to complete the deal. These are called closing costs and can vary based on the location and value of the home, along with a number of other factors.
Average Closing Costs by County
|County||Avg. Closing Costs||Median Home Value||Closing Costs as % of Home Value|
Our Closing Costs study assumed a 30-year fixed-rate mortgage with a 20% down payment on each county’s median home value. We considered all applicable closing costs, including the mortgage tax, transfer tax and both fixed and variable fees. Once we calculated the typical closing costs in each county we divided that figure by the county’s median home value to find the closing costs as a percentage of home value figure. Sources: US Census Bureau 2015 5-Year American Community Survey, Bankrate and government websites.
Part of your closing costs will go to your mortgage lender. These are known as origination fees. It includes origination points, commitment fees, document preparation fees (which aren’t charged by all lenders), mortgage broker fee, processing and underwriting. Each mortgage lender will charge different amounts depending on its administration. If you buy a home with a VA loan, you’ll also pay what’s called a funding fee and a VA appraisal fee.
Additional costs will include a credit report (usually around $30), and a survey (closer to $700, if you choose to have on). You’ll also have to consider title insurance, which insures against any outstanding liens, misfiled deeds or any other issues with former owners. Most lenders require that borrowers have a policy through the company (which covers the loan amount), but you can also buy an additional owner’s policy to cover the home’s entire value. Luckily, you’ll save on one fee: New Jersey is not a state that charges a mortgage tax.
Realty transfer tax are another consideration. Usually the seller is responsible for paying the fee, but sometimes during negotiations the buyer will pay for a percentage. In New Jersey, transfer taxes are calculated in $500 increments based on the price of the home. You can use New Jersey’s realty fee schedule to see how much it will cost. One thing to note is if you’re buying a home that costs more than $1 million, there’s an additional tax of 1%, or $5/$500. The good news is that there are certain exemptions and reductions to these fees for seniors and other special populations. Luckily, the Constitutional Officers Association of New Jersey (COANJ) has created a realty transfer tax calculator that takes those factors under consideration and can give you the fee based on your situation. On top of state fees, there’s also a county fee of about 0.1%. Again, most of these costs are the responsibilities of the seller.
Details of New Jersey Housing Market
New Jersey is the fourth-smallest state by size but is also the 11th-most populated. It has about 8.9 million residents. These two factors combine to make it the most densely populated state in the country. Much of New Jersey’s population is grouped in the northeast counties of Bergen, Hudson, Passaic and Essex which are near New York City. Another large concentration of residents is located in Camden along the southwestern edge of the state, bordering Philadelphia. The largest cities in New Jersey are Newark, Jersey City, Elizabeth and Edison in the northeast, and Paterson in the north.
While the state boasts a long coastline and reputation as a vacation destination, much of New Jersey’s beachfront property was damaged during Hurricane Sandy in 2012. While many affected towns have been rebuilt in the last five years, some areas have been completely abandoned due to sea-level rise. According to RealtyTrac data and NJ.com, the rate of vacant homes in the Atlantic City area is 3.7%, which makes it one of the top five metro areas with the highest vacancy rates in the U.S. If you’re considering New Jersey for a vacation home or as a potential full-time resident, you’ll want to consider the increased hurricane risk and issues that correspond with higher water levels and subsequent erosion.
New Jersey didn’t rank well in SmartAsset’s Healthiest Housing Markets study. It came in 39th due to a high percentage of homes with decreasing values, the number of homes with negative equity and a few other factors. That said, the best places to own within New Jersey are Paramus, Madison and Hoboken. These cities had the highest healthy market scores in the state.
Looking at the big picture, New Jersey’s median home value was $308,300 as of August 2017. That’s an increase of 5% over the last year, according to Zillow data. Homes cost more in the desirable areas, such as Paramus which had a median home value of $594,300 in August 2017. Unfortunately, it’s even higher in Hoboken at $756,700, which is a 9.4% increase from last year’s values, according to Zillow. Newark’s average home value in August 2017 was $227,600, but the city’s high crime rates prevent it from being an attractive choice for many homebuyers.
If you’re wondering how long homes are on the market in New Jersey, it was about 142 days or roughly almost five months in 2016. That number will, of course, vary depending where in the state you’re selling or buying. Each area has its own housing market numbers which you’ll want to consider during your home research.
Another number you’ll want to look at is the percentage of homes which sold for a gain. Unfortunately, in New Jersey it was only an average of 77% in 2016. This is due to a number of factors compounded with New Jersey’s high cost of living and high foreclosure rate.
Local Economic Factors in New Jersey
If you’re moving to the Garden State from somewhere in the Midwest, or a state that has no income tax like Texas and New Hampshire, prepare for a shock to your wallet. New Jersey state income taxes are the sixth-highest in the county. Combine that with the highest property taxes in the U.S., and you have an expensive cost of living in this Northeastern state. Sales tax is 7% for the entire state minus roughly 32 “urban enterprise zones” which only charge 3.5%, or half of the normal sales tax rate. However, if you’re a car owner, you’ll be happy to know that gas taxes are among the lowest in this state. That might be good news to the more than one in seven New Jersey commuters who have “mega commutes” of over an hour. New Jersey ranks number two in the nation with longest commute times, thanks to many residents commuting to New York City. Along with those numbers, New Jersey has the most residents working out of state in the U.S.
New Jersey is home to over 60 colleges and universities, most notably Princeton University and Rutgers University. It also boasts two of the top 10 wealthiest counties in the country: Hunterdon County and Somerset County. Along with wealth, the state doesn’t lack for industry, either. In 2017, New Jersey was home to 21 companies on the Fortune 500 list including Johnson & Johnson, Prudential, Merck and Bed Bath & Beyond. Most of the state’s key industries are clustered along the edges of the state border. This includes bio/pharma life sciences which accounted for $23 billion of New Jersey’s GDP in 2009. Other key industries include transportation and logistics, finance, healthcare and hospitality. As of June 2017, the state’s unemployment rate was 4.2% and the national rate was 4.4%.
If you’re ready to move to the most densely populated state in the U.S., you may want to get a head start on budgeting by comparing your cost of living to life in the Garden State. Take, for example moving from Manhattan, NY to Orange, NJ – a popular move for many growing New York-based families. Life in Orange will cost 8% less on average, with cheaper taxes, housing costs and food. A move from San Francisco to Hoboken, NJ will save you 13% on living costs on average, with living costs a full 23% cheaper in New Jersey. If, however, you’re moving from Kansas City, MO to Jersey City, NJ, you’ll pay 8% more on average. Average housing costs will be 31% higher than the Midwest city, but taxes area actually 3% lower.
Mortgage Legal Issues in New Jersey
New Jersey has mixed messages when it comes to how homebuyers are treated. While some tout that the state is “buyer beware,” known as caveat emptor because of a lack of codified law, others point to state court case rulings that favored homebuyers to prove the state is favorable to buyers. Whichever it may be, New Jersey realtors generally cover their bases by requiring sellers to fill out a detailed seller’s disclosure. Most sellers opt to fill it out to avoid future court cases as well as show transparency about the home’s condition.
New Jersey has had a few landmark cases which establish a few rules in real estate transactions. A seller in New Jersey has a duty to disclose all known, latent material conditions, and can’t avoid disclosure by selling a property “as is.” New Jersey law states that the home must be fit to live in. That said, homebuyers must complete their own due diligence on any potential purchase, which includes any home inspections and tests you deem necessary for the property.
New Jersey deals with another tricky topic, foreclosure, with the Fair Foreclosure Act which provides certain protections for homeowners. Originally enacted in 1995, the act outlines notice requirements and inclusions, timelines, the foreclosure complaint and further details. In December 2016, a bill was introduced to New Jersey’s State Legislature to revise the act, but no decision has been made as of yet. In the new bill, notice (which must be sent at least 30 days in advance of a residential foreclosure) cannot be sent more than 90 days in advance.
New Jersey is considered a judicial foreclosure state, which means lenders have to file with the court to initiate foreclosure proceedings. Court foreclosures are known for being lengthy, and it’s no exception in this state. The average foreclosure takes almost three and a half years in New Jersey.
Unfortunately, the Garden State is notorious for having the highest inventory of homes in foreclosure. The state also leads the nation in “zombie” foreclosures, where homeowners abandon a home before the foreclosure period is finished. This leaves the house to deteriorate, which drives down adjacent property values. Since the recession, numbers across the nation have dropped, but New Jersey is still the highest in the nation for its foreclosure rates. Factors behind the high rate are attributed to the recession, faulty mortgage lending practices, Hurricane Sandy and a high cost of living.
The good news is that New Jersey has a number of agencies to help at-risk homeowners. One of your first options is no-cost help through a local housing agency. You can find counselors through the National Foreclosure Mitigation Counseling Program (NFMC). Making Home Affordable (MHA) has programs including mortgage modification, refinance, principal reduction, repayment plans and more. Your NFMC counselor is trained to in these programs and will help you determine if you may qualify. In addition to counseling, you can also apply for New Jersey’s hardest hit fund which offers up to $50,000 in forgivable loans if you qualify.
New Jersey Mortgage Resources
|Resource||Problem or Issue||Who Qualifies||Website|
|New Jersey Housing and Mortgage Finance Agency Smart Start||Assists with down payments and closing costs.||Must be enrolled in Homeward Bound program and buying a home in designated areas.||http://www.state.nj.us/dca/hmfa/homeownership/buyers/smart/|
|New Jersey Housing and Mortgage Finance Agency Homeward Bound Homeowner Program||Provides a 30-year, government insured loan, at a fixed interest rate with no points.||The program is open to first-time homebuyers, trade up and trade down borrowers.||http://www.state.nj.us/dca/hmfa/homeownership/buyers/homeward/index.shtml|
|State of New Jersey Recovery and Reinvestment||Helps reduce household energy costs via home energy efficiency while boosting home health and safety.||Low income individuals and families whose total household income is at or below 200% of the federal poverty level.||http://www.nj.gov/recovery/programs/wap.html|
|Hardest Hit New Jersey||Offers financial assistance to help bring monthly payment to an affordable level by using Hardest Hit Fund funds for refinancing or modification of the first mortgage loan.||Offers eligible homeowners up to $50,000.||http://njhousing.gov/foreclosure/|
|USDA Rural Development - Single family loans||Offers payment assistance to increase an applicant’s repayment ability.||Applicants must be without decent, safe and sanitary housing; Be unable to obtain a loan from other resources on terms and conditions that can reasonably be expected to meet; Agree to occupy the property as your primary residence; Have the legal capacity to incur a loan obligation; Meet citizenship or eligible noncitizen requirements; Not be suspended or debarred from participation in federal programs.||http://www.rd.usda.gov/programs-services/all-programs/single-family-housing-programs|
|Home Affordable Refinance Program||Refinancing.||Single family homes and condos that fit within lending loan limits.||http://www.harp.gov/|
You can find a number of programs and agencies helpful to homeowners and potential homebuyers in New Jersey. The first place to turn to is the New Jersey Housing and Mortgage Finance Agency (NJHMFA) which houses resources for first-time homebuyers, police, firemen and veteran homebuyers as well as programs for forgivable funding for down payments and/or closing costs. There are several programs designed to help homebuyers obtain 30-year fixed-rate loans. You’ll have to meet certain criteria to qualify, so it’s worth your time to read through the various offerings on NJHMFA’s website. While you’re there, you can also download a homebuying guide and find other helpful information for future homeownership.
While New Jersey does boast plenty of cities and suburbs, you’ll still find large swathes of land that are eligible for United States Department of Agriculture Rural Development loan programs. These programs can help you gain a mortgage for homes located in rural areas and can help if you can’t obtain financing through a traditional lender.
If you’re at risk for foreclosure due to a loss in income or from other financial hardships including medical, divorce, death or disability, you might qualify for New Jersey’s Hardest Hit Fund. These forgivable loans offer up to $50,000 in financial assistance.
Perhaps you’re thinking about retiring to this state. If so, it’s worth considering how retirement tax-friendly the state is. Whatever your plans, it’s always smart to look into all the factors that surround buying a home in a new location.