It must be the bourbon. Since 2012, the economy and the housing market in Kentucky have been even keel with steady growth in employment and gradually increasing housing prices. Actually, Kentucky’s bourbon culture is at the heart of a thriving tourism industry that keeps the economy strong. In 2015, the median home value in Kentucky hit a record high at $125,000, which encouraged sellers, who had been sitting on negative equity, to finally enter the market. Sales activity picked up dramatically in 2015, leading to a shortage of inventory. Housing remains very affordable for first-time homebuyers, but they must be prepared to act quickly. Although closing costs in Kentucky are among the lowest in the country, they can still add several thousand dollars to the cost of a home purchase. Before making a bid, homebuyers should know what goes into closing costs and what they can expect to pay for them.

Average Closing Costs in Kentucky

Average closing costs in Kentucky are based on a loan of $200,000 with a 20% down payment. On average, homebuyers can expect to spend $1,060 on lender fees and $737 on third-party fees, which totals $1,797 in average closing costs. That is below the national average of $1,847 and the 12th-lowest of all states.

Lender practices vary in what and how they charge for closing costs. However, for the more common items, homebuyers pay an average of $1,109 for origination fees, $469 in settlement fees, $425 for a survey, $419 for a home appraisal, $125 for inspections and $100 for courier services. The cost of title insurance is a separate calculation that can add as much as $1,000 to total costs. These averages don’t include pre-paid items, such as property taxes and homeowners' insurance, which are additional out-of-pocket costs. All costs are outlined in a good faith estimate provided to the homebuyer. Lender fees are usually locked-in, while third-party fees can vary by as much as 10% at the time of closing.

What Goes Into Closing Costs in Kentucky

In Kentucky, closing costs can vary based on the lender and the loan product. However, these are among the more common items homebuyers can expect to find on the good faith estimate provided by the lender.

Loan Origination Fees: This fee, which amounts to around 1% of the loan value, covers most of the costs lenders incur for processing the loan. The fee is stated in points, with each point representing 1% of the loan value. With most loans, points can be added to the closing costs as a way to reduce the loan interest rate. Homebuyers who want to keep their out-of-pocket costs to a minimum may be able to roll their points into the loan.

Appraisal Fee: All lenders require an independent appraisal to confirm that the property is valued properly. Lenders need to ensure the property is worth at least what the buyer is paying and that it is reasonable based on recent sales in the area.

Settlement/Legal Costs: In Kentucky, lenders delegate the legal review of settlement documents to an attorney or a legal representative of the title company. Homebuyers can protect their own interests by hiring their own attorney, but it is an additional cost to be paid at closing.

Survey: Not all properties require a lot survey. Lenders may order one if there are any issues over local codes or the possibility of encroachment by a neighboring property.

Title Search and insurance: A title search is performed to confirm the property’s legal ownership and that it is clear of any other claims. To protect themselves against the possibility of any hidden or future claims, lenders require the buyer to purchase a title insurance policy on the lender.

Louisiana (LA): Average Closing Costs

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