Buying a home is a huge financial decision, and there’s more to consider than just the price of the home. Another large expense that’s important to consider when you’re buying a home is 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. If you’re feeling unprepared or overwhelmed, don’t worry. To help you budget for closing costs, this Redfin article will cover how much closing costs are in Michigan, who pays for them, and which costs you can expect to pay as a buyer and as a seller.
How much are closing costs on average in Michigan?
In addition to the down payment, homebuyers will also need to pay closing costs before securing the keys to their new home. Closing costs in Michigan typically range from 2%-5% of the home’s purchase price. Keep in mind that this is just a range and the total amount will depend on a number of factors, such as the buyer’s loan program or negotiations made with the seller.
Let’s say you’re buying a home in Detroit, where the median home sale price is $92,000. Based on this, you could expect closing costs to be between $1,840 and $4,600. Whereas if you’re buying a home in Grand Rapids, which has a median sale price of $284,250, closing costs could range from $5,685 to $14,213.
Who pays closing costs in Michigan?
So, who pays for closing costs in Michigan? In most transactions, both the buyer and seller will pay closing costs. But the buyer and seller will pay for different closing costs and likely have different total closing cost amounts. 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 Michigan
For homebuyers in Michigan, you can expect closing costs to range 2%-5% of the purchase price. If you paid earnest money, this amount will be subtracted from your closing costs, which will reduce the total amount you owe at closing. Earnest money is typically between 1%-3% of the home’s price. Let’s break down some of the common closing costs covered 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 when purchasing a home in Michigan. 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: Your mortgage lender may charge a fee for creating your loan. It’s important to inquire about what this cost covers and whether it’s negotiable to potentially avoid high costs.
- Loan processing fee: Lenders may also charge a loan processing fee, covering underwriting and related services. Similar to the origination fee, check with your mortgage lender to understand its purpose and possible waivers.
- Loan discount points: If you’ve purchased points to lower your interest rate, you’ll usually pay a one-time fee at closing. Each point can lower your rate by 0.25% to 0.5%. Consider your long-term plans, such as how long you plan to own the home or if you plan to re-finance, before purchasing points.
- 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 fee paid as part of closing costs. Buyers typically cover both lender and owner title insurance policies.
- Homeowners insurance: Your annual homeowners insurance premium may be included in your closing costs in Michigan.
- 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 Michigan, you may be required to prepay a portion of your property taxes at closing.
Seller closing costs in Michigan
The closing costs covered by sellers in Michigan can vary, but below are some of the common fees and costs that a seller pays 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: Sellers typically cover the cost of the buyer’s owner’s title insurance policy. This policy protects the buyer from any potential title issues that may arise after the property is sold. The cost of title insurance can vary but is generally based on the property’s sale price.
- Transfer taxes: In Michigan, there is a state levied tax on the transfer of ownership of a property. Sellers can expect to pay a one-time transfer tax as part of closing costs. There may also be additional taxes levied by local governments, such as counties and cities.
Median home sale price data from the Redfin Data Center during July 2024.
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