Land Loans: Understanding Closing Costs

Whether you’re new to borrowing or just need a refresh on closing costs, you may want to know what to expect throughout the process. We're here to help!

In this article:

• Closing cost definition
• Lender closing costs
• Property specific closing costs
• Attorney closing costs
• HUD-1 settlement statement
• How much will you pay?

Understanding Closing Costs

When you’re in the process of getting a land loan, understanding the costs associated with entering into the financial transaction should be very important to you.

If you’ve bought a home before, closing costs may be familiar to you. So you’ll be happy to know there aren’t many differences in closing costs when it comes to land loans. Whether you’re new to borrowing or just need a refresh on closing costs, you may want to know what to expect throughout the process. Below, we explain what closing costs include, what form lists out those costs, and how much you’ll typically pay.

What are closing costs?

Closing costs are the fees for the services and expenses required to close a loan. Every loan and property is different, so each loan will have variations in what’s included in closing costs. The lists below serve as a general guide to what types of closing costs you can expect to see and what they mean, but you should always contact your lender for a closing cost estimate for your specific situation.

Lender Closing Costs

• Origination Fee – Covers administrative costs to process a borrower’s application and is typically based on the loan amount.

• Application Fee – Charged by some lenders for applying for a loan.

• Stock Fee – Borrowing from AgSouth as a cooperative means you own stock in the association at a cost of up to $1,000.00 or 2% of the loan amount; whichever is less. This allows you to participate in the benefits of a cooperative including receiving a portion of our profits through our patronage program. The stock is refunded when you pay off your loan.

• Document Preparation Fee – Standard fee charged by some lenders on all loans.

• Other miscellaneous costs depending on lender in accordance with lender’s policies and procedures.

Property Specific Closing Costs

• Appraisal – Pays for a licensed appraiser to determine what the property is worth before a lender commits the loan. Or, required by lenders as a condition of the loan.

• Flood Determination Fee – Charged when there is a building on the property. The fee goes to a certified flood inspector to determine whether the property is in a flood zone.  If it is determined that the building is in a flood zone flood insurance will be required.

• Hazard Insurance – If the property has an insurable structure, lenders typically require that the structure have insurance. You can use your insurance company to insure the structure. 

• Survey – If property boundaries cannot be determined with an existing survey, a new one may be required. Payer of the survey is either specified in the contract or will have to be agreed upon between buyer and seller at the time it is discovered as a need to move the transaction forward.

• Percolation (Perc) Test – If you intend to build a home on the property, you may elect to get a perc test completed. A perc test is a soil test to determine the water absorption rate in order to find out if the property is suitable for a septic drain field for building a future home. 

• Other miscellaneous costs possible depending on property details such as acreage, property type, improved or non-improved; contact your lender for specific fees related to a specific property.

Attorney Closing Costs

• Title Exam Fee - Fee for physically examining the courthouse records for the chain of title.

• Attorney Settlement Fee – Fee the attorney charges for document preparation, reviewing title work, etc. to get closing ready.

• Title Insurance Fees – Title insurance comes in two forms; a lender’s policy and an owner’s policy.  A lender’s policy is paid by the borrower and protects the lender in case the attorney missed something in the title search that would warrant the transaction to be voided. An owner’s policy is optional to the buyer but offers the same protection to the buyer so that you are protected from any defects in the title. 

• Recording Charges – Cost to record transfer of ownership documents and pledging of collateral for the loan with the state.

• County and State Taxes – Typically prorated as a credit to the buyer at closing or paid by seller at closing depending on if taxes are due at the time of closing.

• Intangible Tax – Tax paid to the State of Georgia. Cost is $3 per $1000 of the purchase price. (South Carolina does not have this tax.)

• Other’s Attorney’s Fees – Each attorney is different and their fees may be listed differently or may have additions/subtractions to the list above. For specific charges for your selected closing attorney, you will need to contact the attorney.

What is a HUD-1 settlement statement?

The HUD-1 settlement statement (also known just as settlement statement) is the form where you’ll see all of the charges associated with a land loan. This includes the purchase price, loan amount, down payments, and all of the closing costs detailed out in a list. It also includes how the property taxes will be split between the buyer and the seller, and who is responsible for paying a specific item.

How much will I pay in closing costs?

Borrowers will usually pay around 2-4% of the full loan amount. However, fees such as title insurance fees, origination charges, and others are based on the loan amount. So, the bigger the loan, the more these fees will be.

Questions?

We hope this information is helpful in understanding closing costs. If you're looking to purchase land, farms or homes in North Carolina, South Carolina or Georgia and have questions about the loan application process one of our loan officers would me more than happy to help. Find an AgSouth Branch near you!

Not in our territory? Find your Farm Credit Association.