July 29, 2017

How much should Tri-Cities Millennials save for closing costs



There are a little more than 57,000 Tri-Cities Millennials who are 25-34 years old – the prime years for first-time homebuyers. Of that group, almost 38,000 of them are renting, according to estimates. Like many local renters, they are paying more to rent than they would be paying for a mortgage on a median-priced home. 

Millennials are not dummies. They may be debt-burdened from their student days and still gun shy of the economy since they saw and felt the effects of the Great Recession during their formative years. However, when you consider the advantages of buying a home instead of renting it is not surprising an increasing number of them are taking their first steps toward homeownership.

They are getting in touch with the ins and outs of down payments and have a handle on the role of interest rates because they are excellent researchers. At the same time, those marketing real estate to them are doing a better job of making those first steps easier. However, studies show there's one area where many of them are still in the dark. They are ill-prepared for closing costs shock. That heads-up first came from a 2015 study commissioned by ClosingCorp a provider of residential closing costs and technology to the mortgage and real estate service industries.

Two-thirds of Millennials told ClosingCorp researchers that they had no idea that they will pay a bundle of fees while closing on their first home. The biggest change since that survey was taken is closing costs have increased.

Depending on the price of the home and a couple of other factors, those who buy in the Northeast Tennessee part of the Tri-Cities region can expect to pay a little over $2,000 in closing costs.  That is less than the national average, but not by much.’s annual survey shows the average closing costs in Tennessee is $1,054 in origination fees and $976 in third-party fees. The national average is $952 in origination fees and $1,133 in third-party fees.

Closing costs vary widely but here are some of the items that show up.

-    Credit report fee.

-    Loan origination fee.

-    Attorney’s fees.

-    Charge for inspections.

-    Discount points.

-    Appraisal fee.

-    Survey fee.

-    Title insurance.

-    Title search fees.

-    Escrow deposit.

-    Pest inspection fee.

-    Recording feed.

-    Underwriting fee.

There’s no way to get around closing costs. However, there are things buyers can do to reign in those costs.  Mortgage Reports offers some tips that all homebuyers should add to their check list before they head to the closing table.

Here are the Mortgage Report’s tips:

-    Don’t overpay on discount points. These one-time, upfront fees get buyers a lower mortgage rate. For those who plan to keep the mortgage for more than seven years, it can mean paying a little more upfront in exchange for long-term savings. However, “discount points have the secondary effect of lowering a loan’s APR. Because of this lenders will often use discount points as a way to make rate quotes look more attractive. Lenders know consumers shop by APR even though they shouldn’t. One way to reduce closing costs is to pay the proper number of points for your particular situation, which may actually be zero. Discount points can be tax-deductible, but they can’t be refunded once paid.”

-    Opt for low or zero-closing cost when appropriate. This option is actually a loan that doesn’t reduce the total costs paid – it reduces the cost paid by the borrower. Closing costs are paid by the lender for a higher mortgage interest rate on the loan. This option is a “good way to step down your mortgage rate while the market gradually improves.”

-    Chose the proper loan type for your needs. Mortgage products vary from conventional to FHA, VA, USDA or jumbo loans and more. Each can meet a specific borrower need.  But each loan comes with its own set of closing costs. It takes some homework, but selecting the right product can be a money saver.

-    Choose a realistic rate lock.  They are typically available in 15 to 60-day increments and 15 or 30-day increments thereafter. Lenders charge more for longer locks. Closing costs can be lowered with a “realistic and appropriate rate lock.”

The complex nature of a home purchase is one of the most important reasons you should consult with your Realtor®. Realtors® have the relationships, experience and market knowledge to guide the home buying process.

Eric Kistner is the 2017 president of the Northeast Tennessee Association of Realtors. The real estate education and trade group is the voice for real estate in the Tri-Cities and has over 1,200 local Realtor® members and over 100 affiliates.