Investing in a new home is an exhilarating and significant decision, especially for first-time homebuyers. However, before you get too caught up in selecting furniture, choosing new paint colors for your bathroom, or revamping your backyard, it’s essential to plan for closing costs.
Closing costs encompass the fees and expenses associated with finalizing a real estate transaction and transferring ownership of a property from the seller to the buyer. Let’s delve into the breakdown of closing costs in Minnesota, who is responsible for covering them, and the various costs you can anticipate as a buyer or seller.
How much are closing costs in Minnesota?
Aside from the down payment, homebuyers will also need to allocate funds for closing costs before officially owning their new home. Typically, closing costs in Minnesota can range between 2% to 5% of the home’s purchase price. It’s important to note that this is a rough estimate, and the final amount will depend on factors like the home’s purchase price, the type of loan, and any negotiations with the seller.
For instance, if you’re purchasing a home in Rochester with a median sale price of $322,500, closing costs could fall within the range of $6,450 to $16,125. Alternatively, if you’re buying a home in Minneapolis with a median sale price of $340,000, closing costs could vary between $6,800 and $17,000.
Who pays closing costs in Minnesota?
Typically, both buyers and sellers share the responsibility of covering closing costs. However, the specific amount each party pays can vary. Buyers usually pay their closing costs upfront, while sellers’ closing costs are typically deducted from the final sale proceeds.
Buyer closing costs in Minnesota
In Minnesota, buyer closing costs generally range from 2% to 5%. If you’ve already paid earnest money, which is typically 1% to 3% of the home’s price, this amount will be subtracted from your total closing costs. Below are some common closing costs that buyers may incur:
- Appraisal fee: Typically ranging from $300 to $500, home appraisals are often paid separately at the time of service. If not, you’ll need to cover this cost at closing.
- Inspection fee: While not mandatory, a home inspection is highly recommended. Inspection costs usually range from $300 to $500 and are typically paid upfront or at closing.
- Loan origination fee: Some lenders charge a fee for setting up your loan. Be sure to inquire about the purpose of this fee and whether it’s negotiable to avoid excessive charges.
- Loan processing fee: Lenders may impose a processing fee covering underwriting and related services. Similar to the origination fee, check with your lender for clarity on this cost.
- Loan discount points: If you opt to purchase discount points to lower your interest rate, you’ll pay a one-time fee at closing. These points can reduce your rate by 0.25% to 0.5%, but evaluate your long-term homeownership plans before committing to a reduced rate.
- Private mortgage insurance (PMI): Mandatory for down payments below 20%, PMI may involve an upfront fee at closing depending on the loan type. It’s typically included in your monthly payments, but certain loans offer the option to pay it as a lump sum.
- Title insurance: A one-time closing cost, title insurance is usually covered by buyers for both lender and owner policies.
- Homeowners insurance: In Minnesota, your annual homeowners insurance premium may be part of your closing costs.
- Homeowners Association dues: For properties in HOA-managed communities, buyers may have to pay one month’s dues at closing, varying based on the property and covering maintenance and operational expenses.
- Property taxes: As part of closing costs in Minnesota, you might need to prepay a portion of your property taxes at closing.
Seller closing costs in Minnesota
Sellers in Minnesota may encounter varying closing costs, but here are some common expenses they may be responsible for:
- Real estate agent commission fees: These fees can be substantial for sellers and are subject to negotiation. Sellers should discuss commission fees with their agent to understand their options.
- Homeowners Association fees: If the property is part of an HOA, sellers may need to pay various fees, including transfer fees, outstanding dues, and fees for providing HOA documents to the buyer. The specific fees will depend on the HOA’s regulations.
- Property taxes: Any outstanding property taxes must be settled at closing. If the seller has prepaid taxes beyond the closing date, they may receive a credit for the unused portion.
- Title insurance: Sellers may be responsible for purchasing owner’s title insurance as part of their closing costs in Minnesota, typically based on the home’s sale price.
- Transfer taxes: Sellers are typically required to pay state and local transfer taxes in Minnesota. These taxes are typically a percentage of the property’s sale price and can vary by jurisdiction.
Median home sale price data sourced from the Redfin Data Center in July 2024.