You’ve found the perfect home, you have a down payment saved and you’re ready to make an offer. But wait – before you sign on the dotted line, it’s important to calculate the closing costs you’ll be responsible for. In this blog, we’ll answer the question, “How do closing costs work?” as well as:
- What are closing costs?
- What is included in closing costs?
- How much are closing costs in Tennessee?
- How to lower your closing costs
Let’s start by understanding closing costs and how they can impact your home purchase.
What Are Closing Costs?
“Closing costs” is the umbrella term used in the real estate industry to explain the fees – aside from the cost of the house – associated with home buying or selling. These can include things like appraisal fees and underwriting fees.
Generally, according to NerdWallet, these expenses fall between 2% and 5% of the total loan amount.
What is included in closing costs varies depending on where you live. In this blog, we’ll focus on some of the more common examples in Tennessee.
What Is Included in Tennessee Closing Costs?
When learning how closing costs work in Tennessee, it’s important to understand the different types of expenses that may fall into this category. Here, we’ve listed a few of the most common examples:
Credit Report Fee
If you’re taking out a home loan, your lender will likely charge a fee to check your credit score. These types of fees are generally low, often under $30.
While Tennessee does not require homebuyers to work with a real estate attorney, if you choose to, you’ll pay this fee as part of the purchase process.
Loan Application, Origination and Underwriting Fees
These three fees are a major portion of what is included in closing costs. Application fees, as you may have guessed, are the amount your lender may charge to review your loan application.
Loan origination fees are similar, and they cover the costs of processing and preparing your loan. In most cases, you’ll pay between 0.5% and 1% of your loan total.
Some lenders also charge underwriting fees, which is an additional expense for taking on the risk of lending money to a borrower. Generally, these fees cost between $400 and $900. Often, though, underwriting costs are included in the loan origination fee.
Specialty Loan Fees
For borrowers taking out unconventional loans, like FHA, VA and USDA loans, an additional fee may apply.
The appraisal fee is the amount paid to an appraiser to determine how much a home is worth. Generally, Tennessee appraisal fees fall between $230 and $375.
Home and Pest Inspection Fees
Home inspectors can find flaws and damage that may not be obvious to everyday homebuyers. Generally, home inspection costs between $300 and $450 but could save you from paying thousands in repairs.
Closing costs in Tennessee generally include some specific pest inspection fees, as well, like termite inspection.
Land Survey Fee
Lenders often require a land survey to determine the size and exact boundaries of a property. This ensures that buyers aren’t paying extra for space that isn’t theirs.
When you’re learning what is included in closing costs, transfer tax is an important expense to account for. A transfer tax is the cost of transferring the ownership of a property from one individual to another. Transfer tax in Tennessee is $0.37 per $100 of the home purchase price.
This is the cost of making your home purchase official in county records.
This closing cost protects the buyer and lender from incurring additional expenses from any previous ownership issues the title company unearths during or after the purchase process.
If you use an escrow company to facilitate your homebuying process, then you’ll pay their fee as part of your closing costs.
Real Estate Agent Commission
If you worked with a real estate agent to purchase the home, you’ll be responsible for paying their commission after buying the home.
If your down payment is less than 20% of the home’s total cost, you may be required to pay mortgage insurance to qualify for a home loan.
Property Taxes and Other Costs
Becoming a homeowner is an exciting journey, but it’s important to keep in mind that your down payment and mortgage are not the only expenses.
Once you buy a home, you’ll become responsible for paying regular costs like property taxes, homeowners insurance, repair expenses and more. Be sure you’re prepared to be responsible for all of these costs before buying your first home.
How Much Are Closing Costs in Tennessee?
According to Clever, the average closing costs in Tennessee total $2,030. That doesn’t necessarily include every fee you may incur while buying a home in Tennessee, however. Be sure you’re adequately prepared if you’re thinking about becoming a homeowner.
How to Avoid or Lower Your Closing Costs
If you’re interested in lowering your closing costs, consider these strategies:
- Shop around for the best lenders and interest rates
- Review your loan estimate closely, and ask the lender about any fees that are unclear
- Research which costs can be comparison shopped or negotiated
- Work with the seller to share the expenses
- Aim to close at the end of the month to minimize insurance costs
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Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as legal or tax advice. An attorney or tax advisor should be consulted for advice on specific issues.