Buying a new home is an exciting and big decision, especially if you’re a first-time homebuyer. But before you dive too deep into furniture shopping, picking out new colors for your bathroom, or re-designing your backyard, be sure to budget for closing costs.
Closing costs are 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 break down how much closing costs are in Minnesota, who pays for them, and what costs you can expect to pay as a buyer and as a seller.
How much are closing costs in Minnesota?
In addition to the down payment, homebuyers will also need to pay closing costs before securing the keys to their new home. Typically, closing costs in Minnesota can range anywhere from 2%-5% of the home’s purchase price. But it’s important to remember that this is just a range and the total amount will depend on a number of factors, such as the purchase price of the home, the type of loan, and any adjustments negotiated with the seller.
For example, if you’re buying a home in Rochester, which has a median sale price of $322,500, closing costs could range anywhere from $6,450 to $16,125. Or, let’s say that you’re buying a home in Minneapolis, which has a median sale price of $340,000. Closing costs for a home here could cost you anywhere between $6,800 and $17,000.
Who pays closing costs in Minnesota?
Generally, both buyers and sellers can expect to pay closing costs. But, each party’s closing costs amount will vary depending on what they are required to pay. Another thing to keep in mind is that buyers typically pay for closing costs out of pocket, while the seller’s closing cost payments are often deducted from the home sale proceeds.
Buyer closing costs in Minnesota
Closing costs in Minnesota for homebuyers typically range between 2%-5%. If you’ve paid earnest money, which is typically 1%-3% of the home’s price, this amount will be subtracted from your closing costs. Below are some of the common closing costs paid for by the buyer:
- Appraisal fee: Home appraisals, which typically range from $300 to $500, are usually paid for separately at the time of the service. However, if not, you’ll need to pay for this at closing.
- Inspection fee: Although not required, a home inspection is highly recommended. Home inspections generally range from $300 to $500 in cost and are usually paid at the time of service. However, if not, it will need to be paid at closing.
- Loan origination fee: Some lenders charge a fee for creating your loan. As you shop around for lenders, inquire about what it covers and whether it’s negotiable to avoid high fees.
- Loan processing fee: Lenders may also charge a loan processing fee, covering underwriting and related services. Similar to the origination fee, check with your lender to understand its purpose and possible waivers.
- Loan discount points: If you buy discount points to lower your interest rate, you’ll pay a one-time fee at closing. These points can lower your rate by 0.25% to 0.5%, but consider your long-term homeownership plans before paying for a reduced rate.
- Private mortgage insurance (PMI): Required for down payments under 20%, PMI might involve an upfront fee at closing, depending on the loan type. It’s usually part of your monthly payment, but some loans offer the option to pay it as a one-time fee.
- Title insurance: Title insurance is a one-time closing cost, with buyers commonly paying for both lender and owner policies.
- Homeowners insurance: In Minnesota, your annual homeowner’s insurance premium may be part of your closing costs.
- Homeowners Association dues: For homes in HOA-managed communities, you might have to pay one month’s dues at closing, which can vary depending on the property and covers maintenance and operational expenses.
- Property taxes: As part of closing costs in Minnesota, you may be required to prepay a portion of your property taxes at closing.
Seller closing costs in Minnesota
The closing costs covered by sellers in Minnesota can vary, but here are a few common closing costs that sellers pay for:
- Real estate agent commission fees: These fees can be a significant cost for sellers. Commission fees may vary and are subject to negotiation. Sellers should discuss their options with their agent.
- Homeowners Association fees: If the property is part of an HOA, the seller may need to pay a variety of fees. These can include HOA transfer fees, outstanding dues, and possibly a fee for obtaining HOA documents required by the buyer. The exact fees will depend on the HOA’s rules and regulations.
- Property taxes: Any outstanding property taxes will be due at this time. However, if the seller has prepaid property taxes for the period that extends beyond the closing date, they may be credited back for the portion they’ve paid but won’t use.
- Title insurance: As part of closing costs for sellers in Minnesota, sellers may pay for owner’s title insurance. Typically, this cost is based on the home’s sale price.
- Transfer taxes: In Minnesota, sellers are responsible for paying state and possibly local transfer taxes. These taxes are typically a percentage of the property’s sale price and can vary widely by jurisdiction.
Median home sale price data from the Redfin Data Center during July 2024.
