Buying a new home is an exciting and big decision, especially if you are a first-time home buyer. But before you dive into furniture shopping, picking out new colors for the bathroom, or redesigning the backyard, be sure to budget for 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. Let’s break down what closing costs are in Minnesota, who pays them, and what you can expect to pay as a buyer and seller.
How much does a closing cost in Minnesota?
In addition to a down payment, homebuyers also need to pay closing costs before they can get the keys to their new home. Typically, closing costs in Minnesota can range 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 many factors, such as the purchase price of the home, the type of loan and any adjustments negotiated with the seller.
For example, if you buy a home in Rochester, where the average sales price is $322,500, closing costs could range from $6,450 to $16,125. Or, let’s say you’re buying a home in Minneapolis, where the median sales price is $340,000. Closing costs here can range from $6,800 to $17,000.
Who Pays Minnesota Closing Costs?
Generally speaking, both the buyer and the seller are required to pay closing costs. However, the amount of closing costs for each party will vary based on how much they need to pay. 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.
Minnesota buyer closing costs
Closing costs for Minnesota home buyers typically range from 2% to 5%. If you pay a security deposit (usually 1%-3% of the home price), this amount will be deducted from your closing costs. Here are some common closing costs 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 fee: Although not required, a home inspection is highly recommended. 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: Some lenders charge a fee to create the loan. When you’re shopping around for a lender, ask what they cover and if you can negotiate to avoid high fees.
- Loan processing fee: Lenders may also charge a fee for loan processing, including underwriting and related services. Similar to the origination fee, check with your lender to understand its purpose and possible exemptions.
- Loan discount points: If you purchase discount points to lower your interest rate, you’ll pay a one-time fee at closing. These points can lower your rates by 0.25% to 0.5%, but consider your long-term homeownership plans before paying the reduced rate.
- 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’s 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 closing cost, and the buyer usually pays for both the lender and the owner’s policy.
- Home Insurance: In Minnesota, your annual homeowners insurance premium may be part of your closing costs.
- 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 Minnesota closing costs, you may be required to prepay a portion of your property taxes at closing.
Minnesota Seller Closing Costs
The closing costs that sellers pay in Minnesota can vary, but here are some common closing costs that 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: As part of a Minnesota seller’s closing costs, the seller may pay for owner’s title insurance. Typically, this cost is based on the sales price of the home.
- Transfer tax: In Minnesota, the seller is responsible for paying state taxes and possible local transfer taxes. These taxes are usually a percentage of the property’s sales price and vary widely by jurisdiction.
Median home sales price data from the Redfin Data Center for July 2024.
