Buying a home is a big financial decision, and there’s more to consider than just the price of the home. Another important expense to consider when buying a home is closing costs.
Closing costs are the fees and expenses associated with completing a real estate transaction and transferring ownership of the property from seller to buyer. Don’t worry if you feel unprepared or overwhelmed. To help you budget for closing costs, this Redfin article will explain how much closing costs are in Michigan, who pays them, and what you can expect to pay as a buyer and seller.
What are the average closing costs in Michigan?
In addition to a down payment, homebuyers also need to pay closing costs to get the keys to their new home. Closing costs in Michigan typically range from 2% to 5% of the home purchase price. Keep in mind that this is just a range and the total amount will depend on many factors, such as the buyer’s loan program or negotiations with the seller.
Let’s say you’re buying a home in Detroit, where the median sales price is $92,000. Based on this, you can expect closing costs to be between $1,840 and $4,600. However, if you’re buying a home in Grand Rapids, where the average sales price is $284,250, closing costs could range from $5,685 to $14,213.
Who pays closing costs in Michigan?
So, who pays the closing costs in Michigan? In most transactions, the buyer and seller will pay closing costs. But buyers and sellers will pay different closing costs and may have different total closing cost amounts. Another thing to remember is that buyers typically pay closing costs out of pocket, while sellers’ closing costs are typically deducted from the home sale proceeds.
Buyer Closing Costs in Michigan
For Michigan home buyers, closing costs can be expected to be 2%-5% of the purchase price. If you pay a deposit, this amount will be deducted from your closing costs, which will reduce the total amount you owe at closing. The deposit is usually 1%-3% of the house price. Let’s take a closer look at some common closing costs that buyers pay:
- Assessment fee: Home appraisals typically range from $300 to $500 and are usually paid separately at the time of service. However, if not, you will need to pay a fee at closing.
- Inspection fees: Although not required, a home inspection is highly recommended when purchasing a home in Michigan. The cost of a home inspection generally ranges from $300 to $500 and is usually paid at the time of service. However, if not, payment will be required at closing.
- Loan origination fee: Your mortgage lender may charge a fee to create your loan. It’s important to understand what this fee covers and whether it can be negotiated to avoid high fees.
- Loan processing fee: Lenders may also charge a fee for loan processing, including underwriting and related services. Similar to origination fees, check with your mortgage lender to understand their purpose and possible exemptions.
- Loan discount points: If you buy points to get a lower interest rate, you’ll usually pay a one-time fee at closing. Each point can lower your rates by 0.25% to 0.5%. Before purchasing points, consider your long-term plans, such as how long you plan to own the home or whether you plan to refinance.
- Private Mortgage Insurance (PMI): If the down payment is less than 20%, PMI may charge an upfront fee at closing, depending on the loan type. It is usually part of your monthly payment, but some loans offer the option of paying it as a one-time fee.
- Title Insurance: Title insurance is a one-time fee paid as part of the closing costs. Buyers often carry both lender and owner title insurance.
- Home Insurance: Your annual home insurance premium may be included in your closing costs in Michigan.
- Homeowners Association Dues: For homes in HOA-managed communities, you may be required to pay one month’s dues upon closing, which may vary by property and cover maintenance and operating expenses.
- property tax: As part of Michigan closing costs, you may be required to prepay a portion of your property taxes at closing.
Michigan Seller Closing Costs
Closing costs for sellers in Michigan can vary, but here are some common fees and costs sellers pay:
- 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 an agent.
- Homeowners Association Fees: If the property is part of an HOA, the seller may be required to pay various fees. These fees may include HOA transfer fees, outstanding payments, and fees that may be incurred to obtain the HOA documents required by the buyer. The exact fees will depend on the HOA’s rules and regulations.
- property tax: Any outstanding property taxes will be due at this time. However, if the seller prepaid property taxes after the closing date, they may receive a refund for the portion that was paid but will not be used.
- Title Insurance: The seller usually bears the cost of the buyer’s owner’s title insurance. 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 usually depends on the sales price of the property.
- Transfer tax: In Michigan, the state imposes a tax on the transfer of property ownership. The seller may be required to pay a one-time transfer tax as part of the closing costs. Local governments (such as counties and cities) may also impose additional taxes.
Median home sales price data from the Redfin Data Center for July 2024.
