What are closing costs?

Closing costs are made up of several different fees and charges that come together at the end of a real estate transaction. They vary depending on your loan type, location, lender, and how the purchase contract is written.

Common buyer closing costs include:

• Lender fees: Origination fees, underwriting fees, and any discount points you choose to pay to lower your interest rate.
• Prepaid items: Homeowners insurance premium, prepaid property taxes, and prepaid mortgage interest for the days remaining in the closing month.
• Title-related fees: Title search, title insurance (owner's policy and lender's policy), and the closing/settlement fee.
• Recording fees: The county charges a fee to record the new deed and mortgage documents in the public record.
• Appraisal fee: Usually paid upfront or at closing, depending on your lender.
• Survey fee: Not always required, but sometimes needed to confirm property lines.

Common seller closing costs include:

• Real estate agent commission: Paid from the sale proceeds at closing.
• Title-related fees: Sellers often pay for the owner's title insurance policy.
• Transfer taxes: Some states and counties charge a tax when a property changes ownership.
• Prorated property taxes: The seller pays taxes for the portion of the year they owned the home.
• Any agreed-upon seller concessions: If the buyer negotiated for the seller to cover some of their closing costs, this comes out here.

In Alabama and Tennessee, closing costs follow similar patterns, though specific fees vary by county and lender. Working with a local real estate agent and a knowledgeable title company makes a significant difference in understanding and negotiating these costs.