Congratulations! You’ve reached the pinnacle of the home-buying mountain: Closing. Hopefully your amazing agent has kept you well-informed every step of the way, and there won’t be any surprises at closing. Just in case, you should know about a little thing called closing costs. They are not so fun and can be a little overwhelming, but they’re good to know about.
Closing costs consist of a number of fees and advance payments you have to fork over before those keys are finally in your hands. You can expect to pay a total of 2-5% percent of the property’s sale price. On the bright side, about two-thirds of the country pay more in closing costs than Tennesseans do.
Your lender will give you a written loan estimate within three days after you submit an application. Fees can change, but the estimate gives you a general idea of what needs to be done and how much it will cost before the home is yours. Some costs are negotiable and some don’t apply to everyone, but don’t get your hopes up…most are unavoidable.
Here are common closing costs. Most will be applicable to your closing, some may not be.
Application fee. Payment to the lender to process your application. This one can be negotiated. It may include fees you already paid, so read it over. Some lenders don’t charge application fees.
Rate lock fee. A fee charged by the lender for guaranteeing a specific interest rate for a specific time period.
Recording fee. Charged by your local recording office for the recording of public records.
Survey Fee. Charged by a surveying company to check and confirm property lines.
Title search fee. Charged by the title company to review public property records for ownership discrepancies (disputes, liens, etc.).
Title insurance. The fee to insure the home’s title against any issues such as outstanding property taxes, liens, and unpaid mortgages.
Transfer tax. A tax for transferring the title from seller to buyer. Yes, we’re serious.
Homeowner’s insurance. Covers damage to your home. Lenders often want the first year’s homeowner’s insurance paid at closing.
Underwriting fee. Charged by the lender for underwriting a loan. Underwriting is researching —verifying financial info, income, employment and credit for the final loan approval.
Credit report fee. Charged by credit agencies for a copy of your credit report.
Loan origination fee. Paid to the lender to cover the cost of obtaining and establishing your mortgage. Whatever that means. In Tennessee, this fee is usually between .6% and 1% of the loan amount.
Discount points. Buyers can lower their mortgage rate up to .25%. This is done by “buying” points. A point usually costs 1% of the home price.
Appraisal fee. Paid to the lender to have the value of the property assessed. In Tennessee, this is usually between $230 and $375.
Survey and home inspection fees. After making an offer on a home you need to hire a licensed home inspector and/or surveyor to check the property for defects. These fees are determined by the square footage of the property.
Courier fee. Covers the cost of transporting documents around during the home buying process.
Homeowners association transfer fee. The HOA information you’ve been looking forward to, like dues, bylaws, budget. Look over all this information carefully; it will affect you for years to come.
Escrow fee. Paid to an escrow company that holds it until the appropriate time and then transfers it to pay your property tax. In Tennessee, escrow closing fees are usually split between the buyer and seller.
Property tax. Most lenders want any taxes due within 60 days of a home purchase to be paid at closing.
Private mortgage insurance (PMI). Buyers who put down less than 20% of the home price are often required to pay PMI. Lenders may want the first few months’ PMI at closing. This way, you’ll have more “skin in the game.”
Pest inspection. This pays for the property to be inspected for termites, dry rot, and other pests. It’s required in some states and it’s always required for government loans.
Specialty loan fees. A fee for buyers who are taking out a non-conventional loan. For example, if you have a VA loan, you might have a VA funding fee.
Real estate agent commission. The biggie. Both buyer and seller agents are paid commission at closing. The current commission rate is between 5 and 6% of the sale price. This is split between agents (as well as brokers). Sellers pay commission to their agents and the buyer’s agent.
As you can see, closing fees are a bit more than pocket change, so it’s important to plan for them. At least three days before closing, the lender should give you a closing disclosure statement that outlines closing fees. Compare this to your loan estimate and be sure to ask questions to make sure you understand what you’ll be paying. Compare the final closing fees to the loan estimate the lender gave you when you first applied for the loan.
There you have it. Those are the typical closing costs. Happy Closing!