By The JudyMac Team
The purchase price is the number every buyer focuses on. The costs that surround it — at closing, in the weeks after moving in, and across the first year of ownership — are the ones that catch buyers off guard. Here is what to expect and how to plan for it.
Key Takeaways
- Closing costs in Tennessee typically add 2 to 4 percent of the purchase price
- Property taxes vary meaningfully by location in the Memphis area and confirming the actual obligation for a specific property is essential
- The first year of homeownership almost always includes unplanned repair costs
- Homeowner's insurance, HOA dues, and utility costs in a new home can all differ from what a buyer has been accustomed to paying
Closing Costs: The Upfront Costs Beyond the Down Payment
In Tennessee, closing costs typically run 2 to 4 percent of the purchase price. On a $300,000 home, the closing costs are $6,000 to $12,000 beyond the down payment.
Components include lender origination fees, the appraisal, title insurance, recording fees, and prepaid property taxes and homeowner's insurance. Tennessee manages closings through a title company. Buyers can sometimes negotiate with the seller to cover a portion of closing costs, known as a seller concession, which The JudyMac Team regularly advises on during offer preparation.
Components include lender origination fees, the appraisal, title insurance, recording fees, and prepaid property taxes and homeowner's insurance. Tennessee manages closings through a title company. Buyers can sometimes negotiate with the seller to cover a portion of closing costs, known as a seller concession, which The JudyMac Team regularly advises on during offer preparation.
Closing Cost Line Items to Budget for in Tennessee
- Lender fees: origination fees, discount points if applicable, and the appraisal
- Title insurance: lender's title insurance is required on financed transactions; the owner's policy protects the buyer against title defects and is a one-time premium
- Prepaid items: property taxes and homeowner's insurance collected at closing to fund the escrow account
- Recording fees: charged by the county to record the deed and mortgage
Property Taxes: What Buyers in the Memphis Area Need to Know
Property taxes in the Memphis area vary by location, and the effective rate in Shelby County differs from Germantown, Collierville, Bartlett, and Lakeland. Confirming the actual annual obligation for a specific property before making an offer is essential.
In Tennessee, property taxes are prorated at closing — the seller credits the buyer for the seller's days of ownership, and the buyer owes the full bill when it next comes due. Buyers using a mortgage will have property taxes collected monthly as part of the escrow payment.
In Tennessee, property taxes are prorated at closing — the seller credits the buyer for the seller's days of ownership, and the buyer owes the full bill when it next comes due. Buyers using a mortgage will have property taxes collected monthly as part of the escrow payment.
What Memphis-Area Buyers Should Know About Property Taxes
- Tax rates vary significantly by municipality
- Property taxes are prorated at closing
- Tennessee property taxes are typically paid annually
- Monthly mortgage escrow includes a property tax component
The First-Year Maintenance Reserve
The first year in a new home consistently delivers unplanned expenses, such as a water heater at the end of its life, an HVAC system that needs service, or a pest issue. These are the normal reality of homeownership, and buyers without a dedicated reserve find themselves making difficult financial decisions under pressure.
The standard guidance is a maintenance reserve of one percent of the purchase price per year. For buyers purchasing older homes or homes with aging mechanical systems, a higher reserve in the first year is prudent.
The standard guidance is a maintenance reserve of one percent of the purchase price per year. For buyers purchasing older homes or homes with aging mechanical systems, a higher reserve in the first year is prudent.
Building a Realistic First-Year Maintenance Budget
- One percent of the purchase price annually as a maintenance reserve baseline, so on a $250,000 home, that is $2,500 per year
- Additional reserves for deferred maintenance items identified during the inspection
- An annual HVAC service contract prevents larger repair bills and extends system life
- In the Memphis area, where termite and pest pressure is real, an annual pest control contract is standard practice
Other Costs Buyers Sometimes Overlook
Homeowner's insurance premiums vary based on the home's age, construction type, and location, so make sure to obtain a firm quote before closing rather than relying on the estimate in the loan process.
HOA dues vary widely in the Memphis area, from nominal annual fees in established neighborhoods to meaningful monthly dues in newer communities. Utility costs can also differ significantly from a buyer's prior residence, particularly when moving to a larger home or adjusting to Memphis's hot summers.
HOA dues vary widely in the Memphis area, from nominal annual fees in established neighborhoods to meaningful monthly dues in newer communities. Utility costs can also differ significantly from a buyer's prior residence, particularly when moving to a larger home or adjusting to Memphis's hot summers.
Additional Costs to Build Into the Monthly Budget
- Homeowner's insurance: obtain a firm quote before closing, since the final premium after underwriting can differ from the estimate used in the loan process
- HOA dues: confirm the amount, payment schedule, and what the dues cover, and review the HOA's financial health and any pending special assessments
- Utilities: request prior utility bills from the seller for the most recent 12 months to get a realistic picture of costs in the specific property
- Moving costs, appliances, and immediate improvements: upfront non-real-estate costs of a move are real and should be budgeted alongside the closing costs
FAQs
Can closing costs be rolled into the mortgage in Tennessee?
In most cases, closing costs cannot be added to the loan balance on a conventional purchase. Buyers can negotiate with the seller to contribute to closing costs, which reduces the cash required at closing.
What is escrow and why does the lender collect it?
Escrow is an account maintained by the lender holding funds for property taxes and homeowner's insurance. Each month, a portion of the mortgage payment is deposited into escrow, and the lender pays the tax and insurance bills when they come due. The escrow component is in addition to principal and interest.
How do we find out the property tax rate for a specific home in Memphis?
The Shelby County Assessor of Property website provides assessed values and tax rates for properties within the county. For properties in incorporated communities like Germantown or Collierville, the municipal rate is added to the county rate for the total obligation.
About The JudyMac Team
Judy McLellan is a lifelong Memphian who graduated from Germantown High School and later attended the University of Memphis. Real estate has always been part of her life — she grew up learning from her mother, one of nine women to make the million-dollar sales club its first year. Following her mother's advice to "do business with your heart," Judy has built a career defined by integrity, hustle, and genuine care for every client.
Judy became Crye-Leike's #1 agent in 1997 and held that position for nearly 20 years before being named Crye-Leike's Lifetime #1 Agent in 2016 and retired from competition. She holds the GRI, CRS, and ABR designations and was named among America's Best Real Estate Agents by Real Trends in 2014 and 2015. The JudyMac Team's motto says it best: Hustle and Heart Sets Us Apart.
Reach out to The JudyMac Team to start the conversation about buying in Memphis and the Mid-South. We are here to make sure you know exactly what to expect before, during, and after closing.
Judy became Crye-Leike's #1 agent in 1997 and held that position for nearly 20 years before being named Crye-Leike's Lifetime #1 Agent in 2016 and retired from competition. She holds the GRI, CRS, and ABR designations and was named among America's Best Real Estate Agents by Real Trends in 2014 and 2015. The JudyMac Team's motto says it best: Hustle and Heart Sets Us Apart.
Reach out to The JudyMac Team to start the conversation about buying in Memphis and the Mid-South. We are here to make sure you know exactly what to expect before, during, and after closing.
