What Are Closing Costs in North Carolina?

Understanding closing costs is crucial when engaging in a real estate transaction in North Carolina. These costs represent various fees and expenses paid at the conclusion of a real estate sale. Both buyers and sellers typically incur these charges to finalize the transfer of property ownership.

Understanding Closing Costs in North Carolina

Closing costs encompass a range of fees that arise during the transfer of real estate ownership. They cover the services and legal requirements involved in completing the transaction, ensuring proper title transfer and secure loan processing. For buyers, these costs generally range from 2% to 5% of the home’s purchase price. For sellers, they typically fall between 6% to 10% of the sale price.

These costs include lender-related fees for securing a mortgage, such as loan origination and appraisal charges. Title-related fees ensure clear property ownership, involving services like title searches and title insurance. Government recording fees are paid to the county to register ownership and mortgage documents. Prepaid expenses, such as prorated property taxes and homeowner’s insurance premiums, are often collected at closing to establish escrow accounts. Both buyers and sellers bear a share of these costs, with specific fees and their distribution depending on the transaction’s terms.

Buyer’s Specific Closing Costs

Buyers encounter several closing costs associated with securing their mortgage and ensuring a clear title.

Loan-Related Fees

A common expense is the loan origination fee, which lenders charge for processing the mortgage application, often capped at 0.25 percent of the loan amount. Appraisal fees, usually ranging from $300 to $500, are paid to a professional appraiser to determine the home’s market value. Credit report fees are also incurred to pull the buyer’s credit history.

Title and Legal Fees

Title insurance protects both the buyer and the lender from future claims against the property’s title. While owner’s title insurance is optional, lender’s title insurance is typically required by mortgage lenders, with costs often between 0.22% and 0.25% of the purchase price. State law requires an attorney to be present at closing, so buyers pay attorney fees for legal services like preparing and reviewing documents. These fees can vary, with some attorneys offering flat fees ranging from $750 to $1,250 for straightforward closings, or charging hourly rates up to $248.

Other Costs

Recording fees are paid to the county Register of Deeds to record the deed and mortgage documents. Buyers may also pay prepaid interest, covering interest from the closing date to the end of the month. Property taxes are prorated at closing, with the buyer reimbursing the seller for taxes covering the period from closing through the end of the calendar year. Lenders often require buyers to deposit funds into an escrow account for future homeowner’s insurance and property taxes. If the property is part of a homeowners association (HOA), buyers may pay initial HOA fees or a prorated amount at closing.

Seller’s Specific Closing Costs

Sellers incur various closing costs when transferring property ownership.

Real Estate Agent Commissions

One of the largest expenses for sellers is real estate agent commissions, which typically range from 5% to 6% of the sale price and cover both the listing agent and the buyer’s agent.

Attorney Fees

Attorney fees are common for sellers, covering legal services related to the sale, such as preparing the deed and reviewing closing documents. While optional, many sellers opt for legal representation, with flat fees or hourly rates applying.

Excise Tax

A unique cost for sellers is the excise tax, also known as revenue stamps or transfer tax. This state tax is levied on each instrument conveying an interest in real property at a rate of $1 for every $500, or fractional part thereof, of the property’s value. For instance, a $300,000 home would incur an excise tax of $600. This tax is collected by the Register of Deeds when recording the deed. While typically paid by the seller, it can be a point of negotiation. Some counties may impose an additional local land transfer tax, up to 1% of the sale price in specific areas.

Other Costs

Sellers are also responsible for prorated property taxes, covering the portion of the year they owned the home up to the closing date. If the seller has an outstanding mortgage, the payoff amount for that loan will be deducted from the sale proceeds. Recording fees for the satisfaction of mortgage may also apply, ensuring the lien is removed from the property’s title. Depending on the terms, sellers might also agree to pay for other items, such as a portion of the buyer’s closing costs or home warranty plans.

The Closing Disclosure and Negotiation

Before the final closing, the buyer receives the Closing Disclosure (CD). This form provides a breakdown of all final loan terms and closing costs. Lenders must provide the CD to the borrower at least three business days before the scheduled closing date, allowing time for review. This period provides transparency and allows the buyer to compare final costs with the initial Loan Estimate.

Reviewing the Closing Disclosure helps identify any discrepancies or unexpected charges. Buyers should verify that loan terms, interest rate, and all itemized fees align with their understanding and the Loan Estimate. If errors or significant changes are found, the buyer should promptly communicate with their lender or real estate attorney for clarification. Changes exceeding certain tolerance limits may require a new Closing Disclosure, restarting the three-day waiting period.

While many closing costs are fixed or determined by third parties, some fees might be negotiable. Buyers can discuss negotiating certain costs with the seller, such as requesting seller concessions to cover a portion of their closing expenses. Lender fees or service charges from third-party providers could also be negotiated. Addressing these points before closing is important to ensure agreement on financial obligations and avoid delays.