Closing Costs on New Construction, Explained

Closing costs are the fees to finalize your loan and transfer the home: lender charges, appraisal, title, the closing attorney and prepaid taxes and insurance. Freddie Mac estimates 2% to 5% of the price. In North Carolina the seller pays the excise tax, and builders often offer credits toward the buyer's side.

What closing costs cover

Closing costs are everything it takes to finish the loan and transfer the home, beyond the price and your down payment. They usually include:

• Lender charges. Origination fees and, if you choose them, discount points.
• Third-party services. Appraisal, credit report, survey if required, and flood certification.
• Title. Title search and title insurance.
• The closing attorney. North Carolina closings are handled by attorneys.
• Government fees. Recording fees, and the state excise tax, which the seller pays.
• Prepaid items. Your first year of homeowners insurance, and an initial deposit into escrow for taxes and insurance.

Freddie Mac estimates closing costs at about 2% to 5% of the purchase price.

Who normally pays closing costs in NC?

Each side pays its own, unless the contract says otherwise.

The seller usually pays:

• The excise tax. North Carolina law sets it at $1 for every $500 of the price, paid by the party conveying the property.
• Deed preparation, and the seller's agent commission if there is one.

The buyer usually pays:

• Lender fees, appraisal and credit report.
• Title insurance and the buyer's closing attorney.
• Recording fees for the deed of trust.
• Prepaid insurance, taxes and interest.

NC REALTORS notes that sellers are sometimes asked to pay all or part of the buyer's closing costs, depending on the offer. On new construction, that's where builder credits come in.

Who pays closing costs on a new construction home?

The same split applies: the buyer pays the buyer's costs and the builder, as seller, pays the seller's costs. The difference is that builders often offer a credit toward the buyer's closing costs as an incentive.

A few things to know about those credits:

• They're usually conditional. Many are tied to using the builder's affiliated or preferred lender, title or closing attorney.
• They're capped. Loan programs limit how much a seller can contribute. Fannie Mae, for example, caps it at 3%, 6% or 9% of the price or appraised value on a primary residence, depending on how much you borrow. A credit also can't exceed your actual closing costs.
• They should be in writing. The amount and conditions belong in your contract or an addendum.

How much are closing costs on a $400,000 home?

Using Freddie Mac's 2% to 5% estimate, roughly $8,000 to $20,000. That's a planning range, not a quote.

Your real number depends on your loan type, whether you pay points, your insurance premium and how much escrow the lender collects up front. Builder credits can bring your share down.

The Loan Estimate you get after applying shows estimated closing costs and cash to close. The Closing Disclosure shows the final numbers. Federal rules require the lender to give it to you at least three business days before closing.

Is 10% closing cost normal?

No. Ten percent is well above Freddie Mac's typical 2% to 5% range. If your estimate looks that high, find out why.

Common reasons an estimate runs high:

• Discount points to buy down the rate
• A large escrow deposit, especially with a big insurance premium
• Prepaid interest from an early-in-the-month closing
• Fees stacked from several providers

Ask the lender to walk you through each section. Then get a Loan Estimate from at least one other lender and compare them line by line.

Check the numbers before closing day

1. Compare your Closing Disclosure to your Loan Estimate. The CFPB recommends it.
2. Confirm the builder credit shows up in the amount you were promised.
3. Check your cash to close and how to send it. Confirm wiring instructions by phone with your attorney's office, using a number you already know. Never trust emailed instructions alone.

Who's writing this. I sell new homes for D.R. Horton at Collins Ridge in Hillsborough, so I represent the builder, not you. This guide is general education from my years on job sites and in sales. It isn't legal, tax or lending advice, and it doesn't describe any specific home, price or incentive. Check the sources linked below, and talk with your own lender, agent or attorney before you decide.