You’ve got sunshine year-round, some of the lowest property taxes in the nation, and a mix of stunning coastlines, beaches, and historic towns – welcome to charming South Carolina. If you’re a homebuyer moving to the Palmetto State, you may have saved for a down payment and secured a home loan, but there’s another major financial hurdle to prepare for: closing costs.
Closing costs are an umbrella term, encompassing all the administrative and legal fees homebuyers must pay before they receive the keys to their new home. Think of the various expenses you’ll incur during the homebuying process: There’s your lender, appraiser, home inspector, insurance provider, and the taxman, just to name a few. Instead of paying for each service one by one, these expenses are cobbled together as your closing costs and paid in a single sum on closing day. Count on closing costs to be about 2 to 5 percent of a home’s purchase price.
If you’re buying a new home in South Carolina, NewHomeSource has put together the following guide to help you determine how much you should be saving for closing costs, state-specific rules, and how you can potentially lower these costs.
How Much are Closing Costs in South Carolina?
Closing costs in South Carolina are, on average, $2,944 for a home loan of $210,908, according to a 2021 report by ClosingCorp, which provides research on the U.S. real estate industry. That price tag makes up 1.40 percent of the home’s price tag.
South Carolina’s closing costs are pricy, ranking 13th with the nation’s most expensive closing cost fees, just behind the likes of California, Texas, Florida, and New York. For comparison’s sake, the national average is $6,087.
But homebuyers in the Palmetto State should expect to spend far more than these initial estimates. That’s because ClosingCorp excluded two major closing cost expenses: loan origination fees and private mortgage insurance, or PMI. Origination fees are necessary if you need to take out a home loan, and homebuyers must purchase PMI if their down payment is less than 20 percent. Both expenses can add thousands to their closing costs tab. PMI, for example, ranges from 0.25 to 2.25 percent of your loan.
Home values have risen dramatically, driving up closing costs, too. As of February 2022, the average price for single-family homes was $373,732, up 16.2 percent from the prior year, according to the South Carolina Association of Realtors.
But keep in mind, your closing costs will fluctuate greatly depending on a handful of factors, such as the price and location of the home, down payment, credit score, and the type of mortgage.
What’s Typically Included in South Carolina’s Closing Costs?
Each state has its own set of rules when it comes to real estate closings, from hiring an attorney to paying real estate transfer taxes. To help you navigate what to expect, we’ve grouped your closing costs into three categories: mortgage-related, property-related, and annual fees.
Unless you have the cash on hand to buy your new home outright, your first stop in the homebuying process will be to your lender to apply for a mortgage. The following are the closing cost fees you’ll incur, including the protocol for hiring an attorney:
Loan Origination Fees
Loan origination fees are one of the first expenses you’ll incur; they’re about 0.5 to 1 percent of your total home loan.
These are fees your lender will charge for all the work involved with setting up your home loan, from preparing your application, organizing the underwriting, and producing preapproval letters, to issuing your loan at closing.
Credit Report Fees
Whenever you apply for a loan, whether it’s a mortgage, credit card, or personal loan, your lender will need to pull your credit history with the various bureaus to see how you’ve managed previous debt. The lender will pass along any expenses they incur for pulling your credit report. If more than one borrower is on the loan application, double this cost.
Private Mortgage Insurance
If you aren’t providing a 20 percent down payment, your lender will expect you to buy private mortgage insurance. This allows borrowers to qualify for a conventional loan if they put down 5 to 19.99 percent. While you’re paying for the insurance, the coverage is for your lender in case of default.
PMI typically ranges from 0.25 to 2.25 percent of your loan. Once you hit the 20 percent mark in home equity, you don’t have to pay for PMI.
Under South Carolina law, all residential real estate closings are handled by an attorney, so you’ll need to hire one to manage your home purchase.
The attorney will help with the legal heavy lifting involved with closing on your home: They can draft and certify legal documents, order a title examination, verify that there aren’t any unpaid taxes or charges on the property, and coordinate title insurance for you and your lender.
Before closing day, your attorney will also liaise with your lender to make sure your mortgage will be processed on time. They’ll meet with you in person on closing day to facilitate the transfer of the deed and release funds held in a third-party escrow account to all relevant parties.
Legal fees will vary, depending on the complexity of the sale. Some attorneys bill by the hour while others may charge a retainer fee.
Before you trade away your life’s savings to make the biggest purchase of your life, the property you’re buying will need to clear some pivotal checkpoints. Common property-related fees include:
Title Search and Title Insurance
Your attorney will order a title search on your potential new home, whether you’re buying a brand-new one or a resale property. The title search involves confirming that the land you’re buying is free of ownership disputes, unpaid taxes, judgments, or outstanding lawsuits.
Once the title search is complete, you’ll need to cover your bases with two title insurance policies – an owner’s policy and a lender’s policy. This expense will cover all court costs and related fees if something is missed in the initial title search and there’s a claim on your property.
Unlike other types of insurance that turn into recurring annual expenses, title insurance is a one-time cost that stays in effect until you sell your property.
In South Carolina, buyers are typically on the hook for all title-related fees, including title insurance. This rule isn’t set in stone, though – you may end up shifting this expense during negotiations to the seller.
Real Estate Transfer Tax
Whenever real estate changes hands, buyers and sellers need to account for a transfer tax during closing. In South Carolina, this tax is $1.85 for every $500 of property value. While it’s collected by the county, the rate is the same throughout the state – $1.30 goes to the state, with the remaining $0.55 going to the local county you’re moving to, according to the South Carolina Department of Revenue.
The property appraisal is a make-or-break moment in the homebuying journey. Before your lender agrees to issue your loan, they’ll send a third-party appraiser to make sure your potential property is priced accurately. If you default on your loan, it’s your lender that needs to sell the home to recoup its losses.
The appraiser will scan the home, its size, key features, and condition to compare how it stacks up to similarly priced homes in the neighborhood. While it’s your lender that arranges this step, you’ll pick up the tab.
While an appraiser zeroes in on the market value of your home, you’ll also need to hire an inspector whose job is to check on the health and safety of your big purchase.
This step is worth every penny. Your inspector will carefully examine the home’s condition, including the roof foundation, major appliances, drainage systems, heating, and ventilation.
From there, they’ll provide you with the inside scoop on the home’s overall condition, such as any issues or repairs you may be inheriting down the road. Pay attention – you can bring this intel back to your seller for future negotiations before finalizing the deal.
Property taxes, mortgage payments, insurance premiums – homeownership is a never-ending cycle of bills. Your closing costs will include a handful of fees that you need to start paying annually, including:
In South Carolina, homeowners pay about 0.56 percent of their home’s assessed market value in property taxes, according to the Tax Foundation. This amount may be higher or lower because property taxes are collected on a county level, with each region setting its own tax rate.
Overall, South Carolina has one of the lowest median property tax rates in the U.S., with only a handful of other states collecting lower taxes.
Property taxes are a prepaid expense, meaning they need to be paid at closing and can’t be rolled into your home financing. They’re due annually on January 15th.
Alongside title insurance and PMI, home insurance is another mandatory purchase you’ll need to make before your lender agrees to issue your home loan.
By closing, you must have a homeowner’s insurance policy paid for and in effect for the first year. While it’s mandatory, this expense is worth it for your peace of mind – home insurance covers any physical damage to your home caused by fire, wind, vandalism, or theft.
About 37 percent of South Carolina’s population lives in homeowners’ association communities. There’s a good chance you’ll need to factor in prorated HOA dues at closing, too.
HOA fees cover the cost of clubhouses, pools, community parks, fitness centers, trash removal, security, and fire alarm systems. If you’re eyeing a property, ask about HOA fees upfront so you know what you’re getting in return for this cost.
How Can I Lower My Closing Costs in South Carolina?
Closing costs can add up to a sizeable sum. But don’t fret – there are major strategies worth trying that can drive down the total amount. They include:
Closing Cost Assistance
Start by taking advantage of South Carolina’s homeownership assistance programs. If you qualify, these programs could put a significant dent in your closing costs.
The South Carolina State Housing Financing Development Authority – or SC Housing – is a great place to start. If you’re income-eligible or live in an underserved county, there are programs that offer down payment and closing cost assistance.
From Charleston to Columbia and Fort Mill, there are also local homeownership programs up for grabs.
Get Your Finances in Shape
If your credit score is in bad shape, work on boosting it before shopping for a home loan. With a better credit score in hand, you’ll be able to secure a competitive interest rate, saving you thousands over the lifetime of your mortgage.
Apply as much as you can toward your down payment, too. The closer you get to the 20 percent threshold, the less you’ll have to pay in PMI.
While some closing cost fees are fixed, such as the appraisal and property taxes, you can shop around for some services, such as your lender, home inspector, and title company.
Take time to compare vendors, ensuring they’re appropriately accredited with glowing reviews from previous customers. With a shortlist in hand, ask for quotes so you can make sure you’re getting the best deal.
Negotiate Lender Fees
If you have a longstanding, established relationship with your lender, you may have some wiggle room with your loan setup fees.
You could ask your lender to omit certain expenses from your bill, such as rate lock fees, loan processing fees, or broker rebates. If that doesn’t work, you could also ask to stagger these expenses, so they’re paid in stages instead of all at once at closing.
Don’t shy away from negotiating on who pays for which closing cost expenses with the seller, especially if you’re in a buyer’s market.
Try to reassign some of the closing costs. For example, you can submit a full-price offer with a caveat that the seller must pick up all your closing costs. If you’re building a new home, you could ask the builder to cover your closing costs in exchange for paying for a handful of pricey upgrades.
With a “no-closing-cost” mortgage, your lender agrees to pay for part or all your closing costs, but you must pay a higher interest rate.
Be careful with this option: It could cost you more money overall because of the bump in your interest rate.
Add Closing Costs to Your Home Financing
Aside from the prepaid expenses that must be paid at closing, you could opt to roll your closing costs into your home loan. This could add thousands to your mortgage. You won’t have to pay for closing costs on the day you finalize the deal, but your monthly mortgage payments will be a bit higher.
Carmen Chai is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. For NewHomeSource, Carmen covers a variety of topics, including insurance, mortgages, and more.