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Home Buying 101:Closing Costs Explained

Closing costs are the costs associated with the purchase or sale of a home. There are closing costs for both the buyer and the seller, and they add up to substantial numbers. In general as of 2016, closing costs in the Twin Cities Metro Area of Minnesota are about 3% on the buyers side, and 1% on the sellers side in addition to the commission. Here's how they break down:

Buyers' Closing Costs

Loan Charges

Loan Origination - Most lenders charge between 0.5% to 1% of the mortgage amount
Appraisal Fee - the cost of the appraisal, usually about $400-450
Credit Report - the fee for your credit report
Flood Certification - Checking if the property is in a flood zone, about $10
Discount Points - The buyer can buy down the interest rate by paying discount points at closing.

Prepaids

Initial Interest on the loan - from date of closing through the end of month (calculated as dollars per day times number of days). This amount depends on what day of the month we close. If the closing is towards the end of the month, the amount is lower. In the range of $0 to the amount of the interest on your first payment (about 80% of first payment)
Homeowners Insurance - Upfront 1 year of premiums, could be in the range of $800 to $1500

Escrow Setup

Homeowners Insurance - 3 months of insurance as a deposit into the escrow fund, 1/4 of the amount above
Property Taxes - 6 months of taxes as a deposit into the escrow fund, 1/2 of the annual property taxes

Title Charges

Lenders Title Insurance Premium - Lender required title insurance, about $200
Owners Title Insurance Premium - (optional, but recommended) insurance to protect your title interests, depends on the price of the home, but around $750
Title Services - title search, background check, etc., depends on mortgage amount, in the range of $1000
Closing Fee - Title company fee, usually about $300-500

Government Fees

Recording Charges - about $100 for recording the documents
Transfer Taxes - taxes for mortgage registration

Taxes

Property Taxes - Property taxes prorated to the day of closing. This will be a credit on the buyer side and a debit on the sellers side if the seller owes the buyer some dollars, and vice versa, a debit to the buyer and a credit to the seller if the buyer owes the seller.

Broker Admin Fee

Broker Admin Fee - Real estate brokers charge an admin fee, or brokers commission as part of the closing costs. This usually ranges from $350-500.

Sellers' Closing Costs

Commission

Commission - The commission paid to the real estate brokers associated with the transaction. This includes the commission for both the buyer's agent and the seller's agent. All commissions are negotiable.
Broker Admin Fee - Real estate brokers charge an admin fee, or brokers commission as part of the closing costs. This usually ranges from $350-500.

Title Fees

Title Fee - The fee to prepare the title work for the seller's side of the transaction, usually about $300-350.
Recording Fee - The amount to record documents with the government ($71 per document)
Courier Fee - The amount to courier over the documents ($25 per service)

Governmental Fees

State Deed Tax - $0.0033 to $0.0034 per $1000, depending on the county
Conservation Fee - $5
Special Assessments - Any special assessments usually are paid by the seller.

Taxes and Interest

Balance of Real Estate Taxes Due - Taxes due prorated to the day of closing. This can be a credit or a debit.
Interest Adjustment - One full month of interest on your current loan.

Steven Hong - RE/MAX Results 
REALTOR, e-PRO, GREEN, Old Home Certified 
7700 France Ave S #230, Edina, MN, 55435 
612-990-9009 (cell) 
952-915-2252 (office)
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