It’s no secret that buying a home is one of the biggest financial decisions a person will make, and there are many things to consider besides the price of the home. Another important cost to consider when purchasing a home is the closing costs you will pay.
Closing costs are the final fees paid to complete a real estate transaction, such as taxes, lender fees, and title insurance. Don’t worry if you feel unprepared or overwhelmed. To help you budget for closing costs, this Redfin article will explain how much closing costs are in Tennessee, who pays them, and what you can expect to pay as a buyer and seller.
What are the closing costs in Tennessee?
Homebuyers need to pay closing costs before getting the keys to their new home. As a general rule of thumb, you can expect closing costs in Tennessee to be 2%-5% of the purchase price. However, keep in mind that closing cost amounts depend on many factors, such as the buyer’s loan program or negotiations with the seller.
For example, if you buy a home in Memphis where the average sales price is $190,000, closing costs may range from $3,800 to $9,500. Or, let’s say you’re buying a home in Nashville, where the median sales price is $479,945. Closing costs for a home here can range from $9,599 to $23,997.
Who pays closing costs in Tennessee?
In most areas, including Tennessee, both the buyer and seller will pay closing costs. However, the amount of closing costs for each party will vary based on how much they need to pay. Keep in mind that it’s common for the buyer to pay closing costs out of pocket, while the seller’s closing costs are deducted from the home sale proceeds.
Tennessee buyer closing costs
Closing costs for Tennessee buyers typically range from 2%-5%. If you pay a deposit, this amount will be deducted from your closing costs, which will reduce the total amount you owe at closing. The deposit is usually 1%-3% of the house price. Let’s take a closer look at some common closing costs that buyers pay:
- Assessment fee: Home appraisals typically range from $300 to $500 and are usually paid separately at the time of service. However, if not, you will need to pay a fee at closing.
- Inspection fees: Although not required, a home inspection in Tennessee is highly recommended. The cost of a home inspection generally ranges from $300 to $500 and is usually paid at the time of service. However, if not, payment will be required at closing.
- Loan origination fee: Your lender may charge a fee to create your loan. It’s important to understand what this fee covers and whether it can be negotiated to avoid high fees.
- Loan processing fee: In addition to the origination fee, your lender may charge fees to process your loan. This typically covers coverage and related services. It is recommended to discuss this fee with your lender to see what is covered and if it may be waived.
- Loan discount points: If you purchase discount points to lower your interest rate, you’ll pay a one-time fee at closing. These points can lower your rates by 0.25% to 0.5%, but consider your long-term homeownership plans before paying the reduced rate.
- Private Mortgage Insurance (PMI): If the down payment is less than 20%, PMI may charge an upfront fee at closing, depending on the loan type. It is usually part of your monthly payment, but some loans offer the option of paying it as a one-time fee.
- Title Insurance: Title insurance is a one-time fee paid as part of the closing costs. Buyers often carry both lender and owner title insurance.
- Home Insurance: In Tennessee, your annual homeowners insurance premium may be part of your closing costs.
Homeowners Association Dues: For homes in HOA-managed communities, you may be required to pay one month’s dues upon closing, which may vary by property and cover maintenance and operating expenses. - property tax: Buyers may have to pay property taxes upfront as part of Tennessee closing costs.
Tennessee Seller Closing Costs
Closing costs will vary for each transaction in Tennessee, but here are some common fees and costs sellers incur:
- Real estate agent commission fees: These fees can be a significant cost for sellers. Commission fees may vary and are subject to negotiation. Sellers should discuss their options with an agent.
- Homeowners Association Fees: If the property is part of an HOA, the seller may be required to pay various fees. These fees may include HOA transfer fees, outstanding payments, and fees that may be incurred to obtain the HOA documents required by the buyer. The exact fees will depend on the HOA’s rules and regulations.
- property tax: The seller is responsible for any property taxes accrued but not yet paid prior to the closing date. These unpaid property taxes are usually prorated based on the months you owned the property.
- Title Insurance: The seller usually bears the cost of the buyer’s owner’s title insurance. This policy protects the buyer from any potential title issues that may arise after the property is sold. The cost of title insurance can vary, but usually depends on the sales price of the property.
- Transfer tax: Depending on location and local regulations, Tennessee sellers may be responsible for state transfer taxes as well as potential local transfer taxes. Transfer taxes are usually calculated based on the sales price of the property and are imposed when ownership of the property is transferred from the seller to the buyer.
Median home sales price data from the Redfin Data Center for July 2024.
