Buying a home can involve a lot of expenses to consider, including a down payment, fees, inspection costs, and more. What many people tend to think of, though, when purchasing a home is the sum of closing costs that must be paid before the purchase is finalized. While many parts of the buying process are important, having enough capital for closing costs is an integral part of the entire purchase.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

Closing Costs in Tennessee: What Buyers & Sellers Should Budget For

• Closing costs in Tennessee typically range from 2–5% for buyers and 8–10% for sellers of the home price.

• Seller closing costs include agent commission. Without agent commission, it's typically 1–3%.

• These costs include multiple fees, not just one payment. Think loan origination, appraisal, title insurance, and taxes.

• Both buyers and sellers pay closing costs, but the exact split is often negotiable during the deal. Both buyers and sellers can make concessions to cover costs traditionally paid by the other party, either to make a buyer's offer more appealing or to make a property more appealing to a buyer.

• Buyers usually cover mortgage-related fees, while sellers often pay agent commissions and transfer-related expenses.

• Some closing costs are one-time fees (inspections, attorney, title), while others are prepayments of ongoing ownership costs (property taxes, insurance).

• Closing costs and down payments are two separate sums of money. Down payments aren't counted in closing cost estimates.

What Are Closing Costs?

Closing costs are the costs required to finalize your loan and transfer legal ownership to you. They're a significant upfront expense for buyers, because you're expected to pay closing costs in cash, not through financing. (Some exceptions exist, but they're not the norm.)

Although closing costs are often talked about as if they're one lump sum that's paid to finalize a home purchase, they are actually made up of a variety of smaller fees. These fees can include items like costs for pulling a buyer's credit report, application costs, origination fees, courier charges, and much more. Many people are involved behind the scenes of your real estate transaction, and their services need to be paid for.

It's important to remember that closing costs can vary dramatically from purchase to purchase. Some types of loans can have minimal closing costs while others might find they pay up to 5% of the home's purchase price.

Closing costs are one of the areas that can be negotiated between buyer and seller too, as some homeowners choose to advertise a special arrangement on closing costs to make their property more enticing. If paying closing costs might be a challenge for you, discuss options with your real estate agent. They could be able to get some of the amount paid for by the seller or get them to negotiate in other ways to get you into a great home.

Who Pays For Closing Costs? The Buyer or the Seller?

In the real estate transaction process, both buyers and sellers incur closing costs, but who pays for what can vary significantly based on local customs and negotiated agreements. Typically, buyers are responsible for fees related to their mortgage, such as origination fees, home appraisal fees, and the costs of credit reports. They also often pay for title insurance and escrow fees.

On the other hand, sellers might pay the commission for both the buyer's and seller's real estate agents and may be responsible for certain taxes and a portion of the closing fees. The allocation of these expenses can be a point of negotiation between the buyer and seller, leading to different arrangements tailored to each sale. Understanding these costs and who is expected to pay them is crucial for both parties to prepare adequately for the financial aspects of closing a real estate deal.

How Much Are Closing Costs in Tennessee?

For Buyers

In Tennessee, buyers can generally expect closing costs to be around 2–5% of the home's purchase price. This percentage encompasses a range of fees, including but not limited to:

• Loan Origination Fee (0.5%–1%): A fee lenders charge to handle and process your loan.

• Appraisal Fee ($500–$1,000+): Confirms the property’s value is sufficient to support the loan amount.

• Title Search & Lender’s Title Insurance ($500–$1,000+; varies with property value): Verifies a clear title and protects the lender’s interest in the property.

• Realty Transfer Tax (0.37%): A state-required tax in Tennessee applied when ownership of the property is transferred. The buyer is legally responsible, but in practice, sellers often pay.

• Mortgage Recording Tax (0.115% of loan amount): A tax for recording the mortgage with the appropriate authority.

• Escrow/Closing Fee ($300–$600): Paid to the title company for managing and finalizing the closing process.

• Prepaid Taxes & Insurance: Usually includes 2–3 months of property taxes and a full year of homeowners' insurance. If the seller prepaid their property taxes for the full year, you'll reimburse them for the months they won't own the house.

• Prepaid mortgage interest: Varies depending on your closing date. You'll prepay mortgage interest for the days between closing and your first mortgage payment. Mortgage discount points to lower your rate are another type of prepaid interest.

• Optional Home Warranty ($300–$600): Provides coverage for major home systems and appliances during the first year.

The exact amount can vary depending on the specific details of the purchase offer, the property location, and the negotiated terms of the sale. Buyers should be prepared to allocate additional funds within their budget to accommodate these costs, ensuring a smoother transaction and helping to avoid any last-minute financial surprises as they finalize their home purchase.

For Sellers

Sellers typically face closing costs that range from 8–10% of the home's selling price. These costs predominantly include:

• Real estate agent commissions (2.5–6%): These form the bulk of seller closing costs. Sellers pay their listing agent's commission and customarily pay the buyer's agent's commission. While they can choose not to pay the buyer's agent, doing so shrinks their buyer pool, as many buyers will choose to skip the house rather than pay the extra upfront expense.

• Buyer incentives/Seller concessions: Varies depending on market. Offering incentives like closing cost assistance can make a property more appealing in a buyer's market.

• Prorated property taxes: Seller pays property tax for the part of the current year they owned the house. If they prepaid for the year, the buyer reimburses them.

• Title settlement fees ($700–$1,800): Pays for the title company to manage the closing process, such as coordination between parties, the closing day appointment(s), and handling funds. Buyers and sellers typically split title fees, though the exact split varies. It's even possible for the buyer and seller to use different title companies.

• Owner’s Title Insurance ($800–$2,000+; varies with property value): Optional, but advisable for buyers to protect against undiscovered title issues. In Tennessee, it's generally customary for the seller to pay for the new owner's title insurance.

• Realty Transfer Tax (0.37%): A state-required tax in Tennessee applied when ownership of the property is transferred. The buyer is legally responsible, but in practice, sellers often pay.

• Recording fees ($10–$50+): Often a nominal fee (<$50) + a few dollars per extra page, charged by the county to officially record title changes, mortgages, etc.

• Attorney fees (optional in Tennessee): Tennessee does not require real estate attorneys for transactions, but it can be a smart investment in complicated sales. If used, fees are generally $500–$1,500.

Mortgage payoff occurs between the buyer providing funds and the seller receiving funds. It could be called a closing cost, but it's not typically thought of as one.

Importantly, these expenses are typically deducted from the proceeds of the sale, meaning sellers do not usually need to bring cash to closing.

Closing Costs vs. Homeownership Expenses

Be aware that with the purchase of your new home, you will have recurring charges that are paid continuously. This includes items such as your property taxes, flood insurance, and homeowners insurance.

If you have a mortgage, these charges will typically be included in your mortgage payments. Your lender will divide the annual cost estimate by 12 and store the monthly amount in an escrow accountsescrow account, paying as the bills come due.

At closing, you'll have a one-time deposit toward these expenses upfront as a closing cost, to build a buffer. Then they become ongoing homeownership expenses.

One-Time Closing Cost Fees

Fortunately for buyers, there are some charges that will only be paid once and not regularly after the purchase of the home. For example, you will only pay one time for your title policy. Other charges are a one-time fee such as:

• Attorney Fees

• Home Inspection

• Endorsements

• Notary

• Wire Fees

• Home Protection Plans

• State or City Transfer Taxes

• Appraisal

One-time fees are paid with a cashier's check or wire transfer on closing day.

Make a Plan for Closing Costs

• Estimate Early: Use a closing cost calculator early in the home buying process to get an approximate idea of what you might need to pay. Most lenders provide good faith estimates that detail potential closing costs.

• Save Accordingly: Aim to save between 2% to 5% of the home's purchase price to cover closing costs. Adjust this amount based on local real estate practices and advice from your real estate agent or lender.

• Understand Your Loan Estimate: Thoroughly review the loan estimate provided by your lender within three days of your loan application. This document details your expected interest rate, monthly payment, and total closing costs.

• Negotiate with the Seller: In some markets, it's possible to negotiate with the seller to cover some or all of your closing costs. This can be particularly effective in a buyer's market or if the home has been on the market for a while.

• Shop Around for Services: You can often choose providers for certain services like home inspections and title searches. Shop around and compare prices to ensure you are getting the best deal.

• Check for Lender Credits: Some lenders offer credits to help with closing costs in exchange for a higher interest rate on your mortgage. Evaluate whether this could be a cost-effective option depending on how long you plan to own the home.

• Look for First-Time Homebuyer Programs: Many states offer assistance programs for first-time buyers, which can include grants or loans to help with closing costs and down payments.

• Set Aside a Buffer: Always budget for more than the estimated amount to cover unexpected expenses or last-minute changes in fees.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

Don't Let Closing Costs Surprise You

Closing costs are typically in the thousands, so being aware that this will come up is very important as a buyer. Buying a home in Nashville is a wonderful investment, so being educated on the costs that come with this purchase will allow your family to be prepared.

Planning to buy a home can mean keeping track of a lot of moving parts, but it's best to over budget and have extra money after moving in instead of coming up short. If you're not sure how much money to estimate for the various costs associated with purchasing a home, talk with a reputable mortgage lender.