More Than A Mortgage
It’s extremely important to adequately budget for all the costs associated with purchasing a property or a home. Many buyers will underestimate the total cost of home ownership due to focusing solely on the monthly mortgage payment without considering additional expenses.
Buyers should budget for a down payment, closing costs, property taxes, homeowners insurance, property taxes, utilities, HOA fees, and ongoing maintenance and repair expenses. Closing costs alone could include, but are not limited to, application fee, credit check fee, appraisal fee, home inspection fee, originator/underwriting fees, title search fee, and transfer tax. Don’t forget title insurance, which is optional, but highly recommended. Most lenders will want you to have at least a few months of mortgage payments available in savings too.
Without properly budgeting for all the expenses, buyers could feel overwhelmed by financial strain and even have buyer’s remorse after purchasing the property or home. Be sure to adequately budget for the total cost of ownership to avoid struggling to cover monthly mortgage payments, and in extreme cases, even foreclosure.
In Tennessee, some closing costs are typically paid by the buyer, others by the seller, and some are negotiable. It’s always wise to review a preliminary Closing Disclosure (CD) for itemized costs. The list below shows the most common potential real estate closing costs in the state of Tennessee. Specific fees can vary based on the lender, type of property, and negotiation details.
Lender-Related Fees
- Loan Origination Fee: Charged by the lender to cover loan processing.
- Application Fee: Fee for the initial loan application, sometimes negotiable.
- Underwriting Fee: Covers the cost of the lender’s underwriting team.
- Credit Report Fee: Charge for pulling credit reports.
- Discount Points: Optional, allowing buyers to pay upfront to reduce interest rates.
- Rate Lock Fee: Charged to lock in an interest rate for a specific period.
Title-Related Fees
- Title Search Fee: Covers the cost of a title search to confirm ownership history.
- Title Insurance: Protects the buyer and lender from claims against the property. This includes:
- Lender’s Title Insurance
- Owner’s Title Insurance (optional but recommended)
- Title Examination Fee: Sometimes separate from the title search, examining title records.
Escrow Fees
- Escrow Fee (Settlement Fee): Paid to the title company or attorney handling closing.
- Prepaid Property Taxes: Sometimes prorated between buyer and seller.
- Prepaid Homeowners Insurance: Usually required to cover the property for the first year.
- Escrow Reserves: Lender may require at least a few months of taxes and insurance in escrow.
Recording and Transfer Fees
- Recording Fee: Paid to record the deed and mortgage in public records.
- Transfer Tax: Charged by the state of Tennessee, typically based on the sale price.
Attorney Fees
- Attorney’s Fee: For an attorney to handle or review closing documents (if used).
Home Inspections and Surveys
- Home Inspection Fee: Optional but recommended, covering an inspection of property condition.
- Pest Inspection Fee: Required for certain loans, such as VA loans.
- Survey Fee: Covers the cost of property survey to confirm boundaries.
Appraisal and Property-Specific Fees
- Appraisal Fee: Typically required by the lender to confirm property value.
- Flood Certification Fee: Confirms if the property is in a flood zone; may require flood insurance.
- HOA Fees (if applicable): Pro-rated HOA dues and any transfer fees.
- Septic System Inspection: May be required if the property has a septic system.
Other Prepaid Costs and Miscellaneous Fees
- Prepaid Interest: Covers interest from the closing date until the first mortgage payment.
- Home Warranty (if applicable): Optional, sometimes negotiated in the contract.
Real Estate Agent Fees
- Compensation Fees: Can be paid by the seller, but this cost can affect buyer negotiations indirectly.