Buying a home can involve a lot of expenses to consider, including a down payment, fees, inspection costs, and more. What many people tend to think of, though, when purchasing a home is the sum of closing costs that must be paid before the purchase is finalized. While many parts of the buying process are important, having enough capital for closing costs is an integral part of the entire purchase.
What Are Closing Costs?
Closing costs can include everything from recording fees, title policies, courier charges, inspections, and an impound account. This will range from5percent or more of the total purchase price, varying based on the origination fees the lender charged for the loan.
Although closing costs are portrayed as one lump sum that’s paid to finalize a home purchase, they are actually made up of a variety of smaller fees that are required to process the paperwork that’s involved. These fees can include items like costs for pulling a buyer’s credit report, application costs, origination fees, and much more.
It’s important to remember that closing costs can vary dramatically from purchase to purchase. Some types of loans can have minimal closing costs while others might find they pay up to 5 percent of the home’s purchase price. It’s not uncommon to see these costs being rolled into the total financing of the home, as lenders can be flexible in this area.
Closing costs are one of the areas that can be negotiated between buyer and seller too, as some homeowners choose to advertise a special arrangement on closing costs to make their property more enticing. If paying closing costs might be a challenge for you, discuss options with your real estate agent. They could be able to get some of the amount paid for by the seller or get them to negotiate in other ways to get into a great home.
Who Pays For Closing Costs? The Buyer or the Seller?
In the real estate transaction process, both buyers and sellers incur closing costs, but who pays for what can vary significantly based on local customs and negotiated agreements. Typically, buyers are responsible for fees related to their mortgage, such as origination fees, home appraisal fees, and the costs of credit reports. They also often pay for title insurance and escrow fees.
On the other hand, sellersmight pay the commission for both the buyer's and seller's real estate agents and may be responsible for certain taxes and a portion of the closing fees.The allocation of these expenses can be a point of negotiation between the buyer and seller, leading to different arrangements tailored to each sale. Understanding these costs and who is expected to pay them is crucial for both parties to prepare adequately for the financial aspects of closing a real estate deal.
How Much Are Closing Costs in Tennessee
For Buyers
In Tennessee, buyers can generally expect closing costs to be around 5% of the home's purchase price. This percentage encompasses a range of fees, including but not limited to, loan origination fees, appraisal fees, title insurance, escrow fees, and prepaid items such as property taxes and homeowners insurance. The exact amount can vary depending on the specific details of the purchase offer, the property location, and the negotiated terms of the sale. Buyers should be prepared to allocate additional funds within their budget to accommodate these costs, ensuring a smoother transaction and helping to avoid any last-minute financial surprises as they finalize their home purchase.
For Sellers
Sellers typically face closing costs that range from 8 to 10 percent of the home's selling price. These costs predominantly include real estate agent commissions, which are a significant portion, along with other fees such as transfer taxes, attorney fees, and title insurance. The closing costs for sellers can also cover any agreed-upon buyer concessions, which might be negotiated during the sale process. Importantly, these expenses are typically deducted from the proceeds of the sale, meaning sellers do not usually need to provide additional funds at closing. This arrangement allows sellers to manage their expenses more effectively by directly applying the revenue from the sale toward these costs, simplifying the financial transactions involved in transferring property ownership.
Recurring Closing Cost Fees
Be aware that with the purchase of your new home, you will have recurring charges that are paid continuously. This includes items such as your property taxes, flood insurance, fire insurance premium, and prepaid interest.
One-Time Closing Cost Fees
Fortunately for buyers, there are some charges that will only be paid once and not regularly after the purchase of the home. For example, you will only pay one time for your title policies and escrow accounts. Other charges are a one-time fee such as:
- Attorney Fees
- Home Inspection
- Endorsem*nts
- Notary
- Wire Fees
- Home Protection Plans
- State or City Transfer Taxes
- Pre-Listing Appraisal
Make a Plan for Closing Costs
Estimate Early: Use a closing cost calculator early in the home buying process to get an approximate idea of what you might need to pay. Most lenders provide good faith estimates that detail potential closing costs.
Save Accordingly: Aim to save between 2% to 5% of the home's purchase price to cover closing costs. Adjust this amount based on local real estate practices and advice from your real estate agent or lender.
Understand Your Loan Estimate: Thoroughly review the loan estimate provided by your lender within three days of your loan application. This document details your expected interest rate, monthly payment, and total closing costs.
Negotiate with the Seller: In some markets, it's possible to negotiate with the seller to cover some or all of your closing costs. This can be particularly effective in a buyer's market or if the home has been on the market for a while.
Shop Around for Services: You can often choose providers for certain services like home inspections and title searches. Shop around and compare prices to ensure you are getting the best deal.
Check for Lender Credits: Some lenders offer credits to help with closing costs in exchange for a higher interest rate on your mortgage. Evaluate whether this could be a cost-effective option depending on how long you plan to own the home.
Look for First-Time Homebuyer Programs: Many states offer assistance programs for first-time buyers, which can include grants or loans to help with closing costs and down payments.
Set Aside a Buffer: Always budget for more than the estimated amount to cover unexpected expenses or last-minute changes in fees.
Don't Let Closing Costs Surprise You
Closing costs are typically in the thousands, so being aware that this will come up is very important as a buyer. Buying a home in Nashville is a wonderful investment, so being educated on the costs that come with this purchase will allow your family to be prepared.
Planning to buy a home can mean keeping track of a lot of moving parts, but it’s best to over budget and have extra money after moving in instead of coming up short. If you’re not sure how much money to estimate for the various costs associated with purchasing a home, talk with a reputable mortgage lender.
