If you’re a first-time homebuyer, you may not be familiar with what exactly home closing costs are and how much you need to budget for them. It’s a good idea to familiarize yourself early on with the typical home buying closing costs you’ll face, so you know what to expect.
When a home’s ownership is legally transferred, there are some costs associated with the ‘closing’ of the purchase. A buyer usually pays all of these closing costs, though some buyers will try and negotiate with the seller to pay a percentage.
Here are some of the standard home closing fees that you will face in Minnesota.
Home Appraisal Fee
The home appraisal fee is a third-party fee that you pay to an independent appraiser to determine the value of the home and that you’re paying a fair price for it. The bank also needs this information to ensure that they are also lending a fair mortgage amount. The fee is usually between $400 to $600 depending on the size of the property and its location.
Origination points are a fee paid directly to the lender for processing your mortgage. Except, that you have to pay them for the privilege. The cost includes underwriting, processing of the paperwork, etc. A lender might charge one origination point, which translates as 1% of the total loan value.
These are the taxes you will pay to your county annually because you now own property. They go towards the cost of amenities in your community, such as libraries, schools, fire departments and police departments. The tax amount varies by county and by the value of the property. In Minnesota, the average effective property tax rate is approximately 1.17% of the property value.
The recording fee is for creating a public record of ownership with the registrar of titles in which the property is located. This proves that the property is yours and protects you from any legal liabilities on the property from the seller. In Minnesota, this costs $46. If you don’t do this within four months, you can be fined.
Title Search and Title Insurance
A title is a formal document that serves as evidence of ownership, and it’s essential when you buy to make sure that no one else has a claim to the property. You pay a fee for a title search to be done as an ‘all clear.’ Your lender may require you to have lender’s title insurance as well; this protects them in the event of any problems occurring in the future.
You can also pay for optional owner’s title insurance which is a one-time title insurance premium to protect your title as long as you own the property. Costs vary depending on which title company you use but put aside between $1,000 to $1,500.
As well as title insurance, lenders also require that you have property insurance come closing day. Insurance protects them in case fire or a storm damage the property. Most Minnesota lenders would be reluctant to sign off on a mortgage without having some form of property insurance in place.
On average you can expect to pay in the vicinity of $1,220 per annum for property insurance in Minnesota, but this depends on your home’s value, location and the type of policy. Be aware that the yearly premium can often be an upfront cost come closing day.
Flood Certification Fee
A unique closing cost for Minnesotans is the fee for flood certification by FEMA that states whether or not the property is in a flood zone. The lender will require this certificate as a record of the property’s flood zone status, and if it is zoned in one, then they may need flood insurance. The fee for the certificate is approximately $10.
How Much Are Average Home Closing Costs?
If you’re a first-time homebuyer closing costs can be mightily overwhelming. While the above is by no means an exhaustive list of the home closing costs in Minnesota, it’s a good start. As a general rule of thumb, average home closing costs usually fall between 2-4% of the purchase price, so aim for the upper limit of this percentage, and you should be fine. Your lending professional should be able to walk you through these costs leading up to the close.