Buying a home in Tennessee involves fees and charges called closing costs that must be paid apart from the purchase price of the property.
If you are planning to buy a house in the Volunteer State, read on to learn all you need to know about closing costs in Tennessee.
What Are Closing Costs?
Closing costs are the final expenses that buyers and sellers are obligated to pay in order to finalize a real estate transaction. These include taxes, lender fees, title insurance, and other fees.
It’s important to remember that closing costs can vary from purchase to purchase, depending on what the buyer and the seller agree upon.
Average Closing Costs in Tennessee
When buying a home, one of the crucial questions to ask whether you’re a buyer or a seller is, “How much are closing costs in TN?” Knowing the answer to this question helps to prepare yourself financially and guarantee that your real estate transaction is settled as planned.
In Tennessee, buyers can generally expect closing costs to be around 5% of the property’s home’s price. The exact amount can vary based on the specific details of the purchase offer, the property location, and the negotiated terms of the sale.
Being prepared to allocate additional funds to accommodate these buyers closing costs in Tennessee ensure a smoother transaction and help avoid any last-minute financial surprises as the home purchase is finalized.
For sellers, closing costs typically range from 8% to 10% of the home’s selling price. These expenses are typically deducted from the proceeds of the sale. This means that sellers do not usually have to provide additional funds at closing.
Another critical question to ask is, “Who pays transfer tax in Tennessee?” In Tennessee, these are shouldered by the seller, along with other expenses like real estate agent commissions, attorney fees, and title insurance.
Seller closing costs can also cover any agreed-upon buyer concessions, which might be negotiated during the sale process.
Breakdown of Closing Costs for Buyers
The table below lists the common closing costs covered by buyers in Tennessee:
| Closing Costs | Details |
|---|---|
| Appraisal Fee | Home appraisal fee typically ranges from $300 to $500. This may be paid separately at the time of the service or at closing. |
| Inspection Fee | Although a home inspection is not required in Tennessee, this is highly recommended. Home inspections generally range from $300 to $500. |
| Loan Origination Fee | A fee charged by the lender for executing the loan. It’s important to inquire about what this cost covers and whether it is negotiable to reduce this cost.0 |
| Loan Processing Fee | In addition to the origination fee, lenders may also charge a fee for processing the loan. This typically covers underwriting and related services. |
| Loan Discount Points | Buying loan discount points can lower your rate by 0.25% to 0.5%. A one-time fee will be charged at closing. |
| Private Mortgage Insurance (PMI) | PMI is required for down payments under 20%. This might involve an upfront fee at closing, depending on the loan type. |
| Title Insurance | Title insurance is a one-time fee paid as part of closing costs. Buyers typically cover both lender and owner title insurance policies. |
| Homeowners Insurance | In Tennessee, the annual homeowner’s insurance premium may be part of the buyer’s closing costs. |
| Homeowners Association Dues | For homes in HOA-managed communities, a buyer may be required to pay one month’s dues at closing. This can vary depending on the property. |
| Property Taxes | Buyers may have to prepay property taxes as part of their closing costs. |
Breakdown of Closing Costs for Sellers
The table below lists the common closing costs covered by sellers in Tennessee:
| Closing Costs | Details |
|---|---|
| Title Service Fees | Title fees cover the costs of the title search and title transfer. |
| Owner's Title Insurance | The owner's title insurance protects the buyer if there's a problem with the property title. |
| Lender's Title Insurance | The lender's title insurance protects the bank or financial institution that issued the buyer a mortgage. |
| Recordation Tax | Tennessee charges around 0.37% of the home's sale price to transfer the title to the new owner. |
| Tennessee Recording Fees | A recording fee is paid to legally record a property's deed and mortgage information. |
| Buyer Incentives | Sellers can offer to pay some of the buyer's closing costs to help secure a sale in tough markets. |
| Property Taxes | Sellers are obligated to pay prorated property taxes for the months prior to the sale of the property. |
| Real Estate Commission | Real estate agent commissions include the listing agent commission and buyer's agent commission. |
Who Pays Closing Costs in Tennessee?
In Tennessee, both the buyer and the seller will pay closing costs. The amount of each party’s closing costs will vary depending on what they are required to pay.
In general, the buyer pays closing costs out of pocket, while the seller’s closing costs are deducted from the home sale proceeds.
How Closing Costs Are Paid
In general, seller closing costs are deducted from the sale proceeds, so it is the buyer who actually pays these fees and charges during the settlement of the real estate transaction.
There are a few ways to pay closing costs, one of which is using your checking or savings account if you have the funds to do so. It is important to remember that these funds must be in your account for at least 60 days before you can use them for closing costs.
Another way to pay for closing costs is to roll it into your mortgage. Adding closing costs to your mortgage loan is a great option if you are low on cash. However, be aware that you will pay interest on this amount over the years.
Home buyers can also ask for seller credit. With conventional, FHA, USDA, and VA loans, sellers can cover part or all the closing costs. This option is most common in a buyer’s market where the seller would offer financial help to entice the buyer to finalize the purchase of their home.
The buyer’s parents, relatives, or significant others can contribute to the closing costs with a gift fund. If you would use a gift fund toward the purchase of your next home, let your loan officer know and ask them to have the money sent directly to your escrow account.
Lastly, you can apply for down payment assistance. Many state and local government agencies offer down payment assistance programs that can help eligible home buyers cover both the down payment and closing costs.
Closing Cost Assistance Programs in Tennessee
In Tennessee, closing cost assistance is available through state and local homeownership assistance programs.
For instance, the Tennessee Housing Development Agency’s Great Choice Home Loan Program provides down payment and closing cost assistance for income-eligible first-time homebuyers.
This program allows you to borrow up to 96.5% of your new home’s purchase price. Furthermore, the program provides another $6,000 in the form of a forgivable second mortgage set at 0% interest.
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Conclusion
Closing costs are an essential element in the settlement of a real estate transaction in Tennessee. It is important to prepare for these expenses to set a realistic budget and avoid last-minute surprises.
If you have any questions about closing costs, please do not hesitate to get in touch with us. Feel free to give me a call at 615-505-HOME or send me an email at britton@homeandlake.com to schedule an appointment.
Frequently Asked Questions
Can I negotiate closing costs?
Yes, closing costs are not set in stone and may be negotiated.
Can I roll closing costs into my mortgage?
Definitely, you may opt to roll your closing costs into your home loan, but take note that your monthly mortgage payments will be a bit higher.
What is the average seller closing cost in Tennessee?
In Tennessee, seller closing costs typically range from 8% to 10% of the home’s selling price.
