What are Closing Costs?
Closing costs are the fees and charges that are due upon the final stage of the home purchase process, which is called the settlement or closing. During this stage, both the buyer and the seller sign the final ownership and insurance documents, officially sealing the deal. Generally, most of the closing costs are shouldered by the buyer. However, the buyer may negotiate with the seller to cover some of these costs. Closing fees and legal requirements vary based on the state and municipality of the property purchased, so it is best for homebuyers to learn about these before making an offer to the seller.
Average Closing Costs for Buyers and Sellers in Brentwood, TN
Brentwood homebuyers should allot about 2% to 5% of the property’s sale price towards closing. Given that the median home value in this city is $656,800, the buyer’s closing costs would range between $13,136 and $32,840. In Tennessee, loan origination fees usually range from 0.6% to 1% of the buyer’s loan amount. Buyers can purchase discount points, which is an optional closing cost, to lower their mortgage interest rate. A discount point usually costs 1% of the total loan amount and can reduce the interest rate by up to 0.25%. Lenders will require the value of the property to be assessed by an appraiser, and this usually costs between $230 and $375.
Homebuyers are also required to pay federal, state, and county transfer taxes, which cost 0.37% of the home’s value on average. In Tennessee, the buyer generally pays 50% of the recording fee, which covers the cost of lodging and registering a real estate purchase in your county’s recording office. If the buyer is not able to pay at least 20% of the down payment, the lender will require a private mortgage insurance (PMI), which costs between 0.5% and 1% of the total loan annually.
Sellers, on the other hand, generally pay closing costs amounting between 6% and 10% of the property’s sale price at settlement. Unlike buyers, though, seller’s closing costs are not paid out of pocket. Instead, these are deducted from the profit on their sale. Once the seller has paid off their mortgage and other loans on their home, the highest cost they are expected to pay at closing is the sales commission, which can range from 5% to 8% of the purchase price.
Breakdown of Closing Costs in Tennessee
- Credit Report Fee
- Underwriting Fee
- Loan Origination Fee
- Specialty Loan Fees
- Discount Points
- Appraisal Fee
- Survey and Home Inspection Fees
- Transfer Tax
- Recording Fee
- Title Insurance
- Escrow Fee
- Real Estate Agent Commission
- Broker’s Commission
- Transfer Taxes
- Recording Fees
- Documentary Stamps on the Deed
- Title Insurance
- Property Taxes
How Can a First Time Brentwood, TN Homebuyer Reduce Their Closing Costs?
Even if you are a first time homebuyer, you can still get a great deal on your Brentwood home purchase. We understand that the list of closing costs could be a bit daunting, but remember that all these are negotiable with your lender and the seller. Here are a few things you can do to significantly lower your closing costs:
1. Get a Rebate
In addition to negotiating for a lower broker’s fee, you can work with a broker that gives you a rebate on its commission to significantly reduce your closing costs. You may choose to do some of the legwork, such as viewing properties without a broker, and in return, you will be given a percentage of the commission paid to the broker at settlement.
2. Do Your Research
As most of the closing costs are not set in stone, it pays to learn about the various fees and charges involved at settlement so you can structure the deal to your advantage, avoiding unnecessary fees and
consequently reducing your overall closing costs. For example, knowing that the mansion tax is only applicable for home purchases valued over $1 million becomes handy if you were about to purchase a property worth more than $1 million. If you want to avoid this cost, you can negotiate with the seller to bring down the sale price for less than this amount so you will not be required to pay for this additional fee.
3. Shop Around
Mortgage bankers can get quite competitive just to get your business; so, take advantage of this and request for a quote from more than one lender. The rates offered by lenders vary, and shopping around and comparing rates can translate to huge savings, ranging from one-eighth percent to a half-percent. A half-percent interest on a $500,000 home loan is equivalent to an annual savings of $2,500. Based on a recent study, a homebuyer can save as much as $1,500 by getting one more quote and at least $3,000 by getting five more quotes from different lenders.
4. Delay Your Closing
Another way you can reduce your closing costs is by delaying your closing date to the end of the month. This is because certain closing costs, such as prepaid daily insurance charges, are computed based on the number of days between the settlement and the start of the succeeding month. By scheduling your closing date towards month end, you are able to significantly reduce your cash outlay for prepaid or “per diem” interest. If you want to calculate your savings, simply multiply your loan amount by your interest rate and divide the result by 365 to get your daily interest charge, then multiply this by the number of days left in the month.
Purchasing a real estate property in Brentwood, Tennessee should not be a stressful and complex process. If you are planning to purchase a home in this wonderful location, I can show you all the best options available for you and ensure a smooth process from start all the way to closing. Feel free to give me a call at (615) 371-1544 or send me an email at [email protected].