How Much Are Closing Costs in Tennessee?

When engaging in real estate transactions, individuals often encounter financial obligations beyond the agreed-upon purchase price. These additional expenses, known as closing costs, encompass various fees and charges that finalize the transfer of property ownership. Covering services and taxes associated with the transaction, closing costs represent a significant financial aspect for both buyers and sellers. Understanding these costs is essential for accurate budgeting and to ensure a smooth transition of property rights.

Understanding Closing Costs

Closing costs are fees and charges paid at the conclusion of a real estate transaction. These expenses cover services provided by various professionals and entities involved in property transfer, ensuring legal and financial aspects are handled correctly. They are distinct from the down payment, representing operational expenses rather than a portion of the property’s equity.

Categories of closing costs include loan-related fees, such as lender fees, and fees associated with title transfer and legal documentation. Government fees, including taxes and recording charges, also form part of these costs, along with prepaid expenses for future property obligations.

Specific Closing Cost Components in Tennessee

In Tennessee, real estate transactions involve specific closing cost components for both buyers and sellers. These costs can include lender-related fees, title and escrow charges, government recording fees, and various taxes. The total amount can vary, but buyers typically face costs ranging from 2% to 5% of the purchase price, while sellers often see 8% to 10% due to the inclusion of real estate commissions.

Lender fees for buyers often include loan origination fees, which are typically 0.5% to 1% of the loan amount. Appraisal fees, generally ranging from $300 to $500, are also common. Other lender charges include underwriting fees and credit report fees.

Title and escrow fees are also a significant part of closing costs in Tennessee. Owner’s title insurance, which protects against future claims to the property, typically costs between 0.5% and 1% of the home’s sale price. While customary for the seller to pay this, it can be negotiated. A lender’s title insurance policy is also required by the buyer’s lender. Attorney fees for closing range from $500 to $1,500, depending on the complexity of the sale. Escrow fees can range from 0.5% to 1% of the sale price or between $500 and $2,000.

Government recording fees and taxes add to the overall costs. The Tennessee Real Estate Transfer Tax is $0.37 per $100 of the property’s sale price, and it is paid by the buyer. For instance, a $300,000 home would incur about $1,100 in this tax. A mortgage tax of $0.115 per $100 of indebtedness applies to the loan amount, with the first $2,000 of debt exempt. Recording fees for the deed and mortgage average around $156, but they can vary by county.

Prepaid expenses include prorated property taxes and the first year’s homeowner’s insurance premium. Property taxes in Tennessee average about 0.58% of the assessed value. These amounts are prorated based on the closing date. Other costs for buyers include home inspection fees, typically $300 to $500, and pest inspection fees.

Who Pays for Closing Costs

The allocation of closing costs between buyers and sellers in Tennessee is often subject to customary practices and negotiation. While some costs are traditionally assigned to one party, the final responsibility can be influenced by market conditions and the terms agreed upon in the purchase contract.

Buyers are responsible for costs directly related to their loan, such as loan origination fees, appraisal fees, and credit report fees. They pay for prepaid expenses like the initial year of homeowner’s insurance and prorated property taxes. Buyers also cover the cost of the mortgage tax and the state’s real estate transfer tax.

Sellers are generally responsible for real estate agent commissions, averaging around 5.42% in Tennessee. They pay for the owner’s title insurance policy, although this is negotiable. Other seller expenses can include abstracting fees, some attorney fees, and prorated property taxes up to the closing date.

The division of certain fees, such as escrow fees and some attorney costs, can be negotiated between the parties. Sellers may offer concessions or credits to buyers to help cover a portion of the buyer’s closing costs.

Estimating and Managing Closing Costs

Prospective homebuyers with a mortgage receive a Loan Estimate from their lender, providing a detailed breakdown of estimated closing costs. This estimate is provided within three business days of a loan application and allows for comparison between different lenders. Reviewing this document is important to understand the fees involved.

For cash buyers, estimates for closing costs can be obtained from real estate agents or title companies. These professionals provide a comprehensive list of anticipated expenses based on the property’s value and local practices. Regardless of the financing method, a Closing Disclosure is provided a few days before the closing date, detailing the final costs.

Several factors can influence closing costs, including the type and amount of the loan, the specific location of the property within Tennessee, and the service providers chosen. Different counties may have varied recording fees or local tax rates. Shopping for third-party services, such as home inspections or title work, when permitted by the lender, may offer opportunities to manage expenses.

Budgeting for closing costs requires understanding which fees are negotiable and which are fixed. While some government taxes and recording fees are non-negotiable, other costs like attorney fees or inspection charges might offer some flexibility. Reviewing both the Loan Estimate and the Closing Disclosure ensures accuracy and helps prepare for the financial obligations at closing.