With its scenic mountains, vibrant cities, and the well-known Outer Banks, there’s a reason why homebuyers flock to North Carolina. While you may have secured a mortgage and saved for a down payment to buy your slice of the Tar Heel State, there’s another hurdle you must clear: closing costs.
Closing costs encompass all the administrative and legal services you’ll need to pay before you receive the keys to your new home. Instead of paying each service provider individually, you’ll pay for these fees in a lump sum on closing day. All in, closing costs can amount to 2 percent to 5 percent of a home’s purchase price, paid for alongside the down payment.
If you’re buying a new home in North Carolina, NewHomeSource has put together the following guide on how much you should be saving for closing costs, a breakdown of what’s generally included and how you can potentially lower these costs.
How Much Are Closing Costs in North Carolina?
Closing costs in North Carolina run, on average, $2,766 for an average home loan of $212,894, or 1.30 of the home’s price, according to a 2021 report by ClosingCorp, which provides research on the U.S. real estate industry. Those figures put North Carolina in the 17th spot among the 50 states for the most expensive closing costs. The national average is $6,087.
But homebuyers in North Carolina need to plan on spending far more than this initial estimate. ClosingCorp’s data excludes two major closing costs you’re bound to come across — loan origination fees (if you’re taking out a mortgage) and private mortgage insurance (if you have a down payment of less than 20 percent). Both can add thousands to your closing costs tab.
Also keep in mind that closing costs can fluctuate greatly depending on the price of your home, where it’s located, and the complexity of the sale.
What’s Typically Included in North Carolina’s Closing Costs?
When it comes to understanding the breakdown of your closing costs, it’s easier to group the fees into three categories: mortgage-related, property-related, and annual.
Each state also has its own set of regulations you’ll need to follow, from real estate transfer taxes to hiring an attorney. Here’s what to expect in North Carolina.
The following are the closing cost fees you’ll incur for securing a mortgage, including the protocol for hiring an attorney.
Loan Origination Fees
Home loans don’t come for free — whether you’re working with a bank or mortgage broker, you’ll have to pay for loan origination fees to set up your mortgage application. This expense includes everything from underwriting your loan to providing preapproval letters for your house hunting to processing your funding.
Loan origination fees are typically about 0.5 percent to 1 percent of the loan amount.
Credit Report Fees
Before your lender decides you’re a responsible borrower, they’ll conduct a full credit check, which includes pulling your credit report to look at how you manage debt. Expect your lender to pass on the cost of requesting your credit report to you. If more than one borrower is listed on the mortgage 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, or PMI. PMI allows borrowers to qualify for a conventional loan even if they put down 5 percent to 19.99 percent of their mortgage. The coverage protects your lender in case of loan default.
This cost isn’t included in the ClosingCorp tally of closing costs expenses, but PMI typically ranges from 0.25 percent to 2.25 percent of your outstanding loan balance, depending on the size of your down payment and credit score.
In North Carolina, all legal aspects of real estate closings are handled by an attorney, so you’ll need to hire one to manage your home purchase. Your attorney must play a leading role in specific parts of the closing process, including drafting your purchase agreement, providing an opinion on the title examination, and applying for appropriate title insurance policies.
Real estate professionals, escrow agents, and title companies may help with certain aspects of the closing, such as establishing an escrow account and disbursing funds. The closing also typically occurs at your attorney’s office.
Legal fees may be pricey, but they’re worth every penny. Your home purchase is the single biggest purchase you’ll make so you’ll want to make sure your best interests are factored into all contracts and documentation.
A lawyer is especially important if your home purchase is complicated, such as purchasing a property from out of state or one in foreclosure.
You may decide to hire a title company — or escrow agent — to help ensure you get to closing day on time. Your title company acts as a neutral third party, setting up an escrow account to hold your earnest money deposit, down payment, taxes, and other expenses. This way, the seller won’t receive any funds until both parties meet all their conditions on the sale and the contract is finalized.
Before you can close on your new home, you’ll need to do your due diligence to make sure you’re buying a worthy investment. Here are some common property-related fees.
Your closing attorney will order a title search to verify the seller’s right to transfer ownership. The last thing you want is to buy a home only to inherit a legal issue over ownership or other problems like unpaid taxes, judgments or ongoing lawsuits. Your lawyer will provide their opinion on the title examination to make sure there are no red flags. You’ll need to pay for this step whether you’re buying a brand-new build or an existing home.
After the title search, your attorney must advise you with purchasing the necessary title insurance for both you (owner’s policy) and your lender (lender’s policy). Title insurance protects both parties in case of “defects in title,” which is when something is missed during the title search or there are claims on the property. This is a one-time expense, so the insurance applies for as long as you’re the homeowner of the property.
Before closing, your lender will send a third-party appraiser to your new home to make sure it is priced at the right value. If you default on your mortgage, your lender needs to know they can sell the property if it goes into foreclosure to make up the outstanding balance. The appraiser will evaluate the home’s size and condition, as well as how it stacks up to similarly priced homes in the community, to determine its fair market value.
Hire a professional home inspector to evaluate the health and safety of your potential new home, from the foundation to the roof and everything in between. Pay close attention to your home inspector’s feedback. They will point out any existing issues as well as ones that could surface in the coming years, such as needing to replace major appliances or an aging roof. This is great intel because you can negotiate with the seller regarding any fixes before finalizing the deal.
Real Estate Transfer Tax
Transfer taxes are local and state government taxes that are paid as the seller transfers the home to the buyer. They could be listed as a deed tax or stamp tax on your closing costs bill.
In North Carolina, the basic transfer tax rate is $1 per $500 of property value. Seven counties — Perquimans, Camden, Chowan, Currituck, Dare, Pasquotank, and Washington — can impose a local land transfer tax of up to 1 percent of the sale price. Sellers usually pay for transfer taxes, but this isn’t set in stone. The buyer and seller may allocate this expense to the buyer during negotiations.
In addition, your municipal recording office may charge a fee for recording the transfer of the deed in public records. Typically, buyers pick up the tab for this expense.
Mortgage payments, utility bills, property taxes — homeownership includes recurring expenses you’ll need to budget for year-round. Your closing costs may include a handful of fees that you’ll need to start paying annually.
Property taxes are roughly 0.85 percent, on average, of a property’s assessed fair market value, according to the tax policy nonprofit Tax Foundation. The rate will vary depending on which county you live in, from as low as 0.33 percent in Carteret to as high as 1 percent in Scotland. You can check out your county’s rate on the North Carolina Department of Revenue website.
Property taxes are a prepaid expense, meaning it can’t be rolled into your home financing.
Home insurance is a mandatory purchase before transferring your mortgage so you can buy your house. This is another prepaid expense. It’s crucial to have home insurance in effect by the time you take ownership because it covers any physical damage to your home caused by fire, wind, vandalism or theft.
With nearly 40 percent of homeowners in North Carolina part of a homeowner’s association (HOA), it’s worth double-checking to see if your new home comes with this annual expense.
HOA fees cover the cost of community amenities, such as fitness centers, pools, and community parks. They also may cover expenses to keep your neighborhood running, from trash removal to security.
How Can I Lower My Closing Costs in North Carolina?
Between saving for a down payment and new furniture, you may be looking for ways to lower your closing costs. Here are some key strategies to consider.
Closing Cost Assistance
Homebuyers should take advantage of North Carolina’s homeownership assistance programs to put a significant dent in their closing costs.
If you’re a first-time homebuyer, for example, start with the North Carolina Housing Finance Agency. It has several down payment and closing cost assistance programs for eligible first-time homebuyers that come as either zero-interest, deferred-payment second mortgages or loans that are forgiven within 15 years.
Get Your Finances in Shape
It’s worth getting your financial ducks in a row before heading to your mortgage broker’s office so you have the best shot at securing a low interest rate, which could save you thousands of dollars in interest over the lifetime of your mortgage. Pay off your debts, don’t miss any payments on your bills, and steer clear of applying for more credit.
Save as much as you can for your down payment too. The closer you get to the 20 percent down payment threshold, the less you’ll have to pay in PMI.
Shop around for the best interest rate on your mortgage loan or for any other service providers you’ll need during the homebuying process. Read through reviews, check out referrals from family and friends and obtain quotes from service providers to find the best deal.
During negotiations on the home sale, you may be able to reassign some of your closing costs to the seller, especially if you’re in a buyer’s market.
You could, for example, ask the seller to pay for some of your closing costs if you offer to submit a full price offer on their home. If you’re buying a fixer-upper, you could ask the seller to pick up your closing costs tab in exchange for the repairs you may need to make.
If you’re an established customer with multiple loan products in good standing with your lender, you might consider asking them to omit expenses tied to your mortgage application. The most obvious ones are often labeled as “junk fees,” such as rate lock fees, loan processing fees, and broker rebates.
With a “no-closing-cost” mortgage, your lender agrees to pay part or all of your closing costs while you pay a higher interest rate on your mortgage. Run some calculations before you decide that this is the best route for your bottom line. In the long run, this could cost you more money because of the bump in your interest rate.
Adding Closing Costs to Your Home Financing
Homebuyers who can’t come up with the cash for their closing costs may opt to roll this expense into their home loan. While this may be a convenient way around paying for closing costs up front, you’ll pay interest on your closing costs across the life of the loan, so be sure this is an acceptable trade-off.
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.