What are Closing Costs?
Closing costs are the fees and charges that are due to the buyer and the seller at the close of a real estate transaction. At closing, both parties sign the final ownership and insurance paperwork, and the homebuyer becomes the legal owner of the property. Generally, most of the closing costs are the responsibility of the homebuyer; however, the seller may shoulder some of the buyer’s closing costs, depending on their agreement. The fees and legal requirements involved at closing depend on the state and municipality of the property that has been purchased, so it is best for homebuyers to work with a real estate expert before they make an offer.
Average Closing Costs for Buyers and Sellers in Michigan
Average Buyer’s Closing Costs
Mortgage costs are usually the largest expense when it comes to closing costs. Fortunately, for Michigan homebuyers, mortgage rates in this state are lower than the national average, making it very appealing to purchase a home property in this part of the country. The median home value in Michigan is $142,800 and the average mortgage rate is 4.17%.
Another expense a buyer would have to pay at closing are pro-rated property taxes. In Michigan, residents pay property taxes in advance, so the buyer would have to reimburse the seller for the taxes they’ve already paid. Service fees ranging from $450 to $550 are paid to the title company which prepares the paperwork and closes the real estate transaction.
Lenders require the buyer to purchase a title insurance to protect them from any pre-existing claims on the property. The cost of title insurance is based on the purchase price. Recording the new deed and mortgage would usually cost $100 and is charged to the buyer.
Average Seller’s Closing Costs
The seller is responsible for the costs to transfer the property to the buyer, starting with the owner’s title policy, which ensures that the title is clean, clear, and ready to be transferred free of liens. The cost of this policy is based on the purchase price of the property. So, for a $100,000 home, the title policy would be around $700 and increases by about $300 for every additional $100,000 of the home sales price. Michigan home sellers are also obligated to pay transfer tax which is $8.60 per $1000 of the sales price. Deed preparation fee would cost around $20. And lastly, commissions and broker fees. The standard commission in Michigan is 6% of the sales price, but in some cases, this amount could be lower.
Breakdown of Closing Costs in Rochester Hills, MI
- Mortgage Costs
- Property Taxes
- Title Service Fees
- Title Insurance
- Recording Charges
- Owner’s Title Policy
- Transfer Tax
- Deed Preparation Fee
- Broker Commissions and Fees
Homebuyer Tips: How to Reduce Closing Costs in Rochester Hills, Michigan
The list of closing costs can be quite overwhelming, especially for a first time homebuyer. However, all these fees and charges are not set in stone and the buyer may negotiate for some of the costs to be reduced, shouldered by the seller, or be taken off the list.
1. Research on First-Time Homebuyer Programs
Virtually all banks have some form of first-time homebuyer program, so do some research and see which one would be most beneficial and applicable to you. You may qualify to receive some sort of subsidy on your down payment or get a mortgage through a relaxed credit score. In some cases, a first-time homebuyer may be offered a mortgage with down payments for 3% or 3.5% of the purchase price.
2. Request for a Rebate on the Broker’s Commission
In addition to negotiating for a lower broker’s fee, you can further reduce your closing costs by working with a brokerage firm that offers a rebate on its commission in exchange for doing some of the legwork yourself. For instance, you can check property listings and go to open houses without your broker and they would reward you by giving you a percentage of the commission that is paid to the broker at closing.
3. Familiarize Yourself with the Fees and Charges in Your List of Closing Costs
It is best for you to learn about each and every item on your closing costs list because this knowledge would enable you to negotiate for the best deal out of your home purchase. You can do this by researching online, but it is ideal that you work closely with a real estate expert so that you are armed with all the right information. By knowing everything you need to know about your closing costs, you will be able to negotiate for lower fees and even take out some of the fees that seem vague or unnecessary.
4. Shop Around for Rates from Several Different Lenders
What most homebuyers don’t usually do – shop around for lenders. And as a result, they are not able to compare quotes and get the best rates. The fact is, different lenders use different terms for closing costs and they also offer different rates. So, if you want to get the best rate, don’t just ask a quote from one lender. Instead, ask a quote from two or more lenders, and you may be able to save at least $1,500. According to a study, a homebuyer can save as much as $1,500 by getting one more quote and at least $3,000 by getting quotes from five different lenders.
5. Set Your Closing Date Towards the End of the Month
Certain costs, such as prepaid daily insurance charges, are pro-rated and can be reduced with the right timing. If you schedule your closing date towards the end of the month, the per diem interest will be lower because the number of days from the closing date to the start of the next month is less. If you want to calculate your savings, simply multiply your loan amount by your interest rate then divide the result by 365 to get your daily interest charge. Next, multiply that figure by the days left in the month and the result will be the amount you’ll have to pay at closing.
Although closing costs are not set in stone and may be negotiated with all parties involved in your real estate transaction, all the information can be very confusing to homebuyers and having a real estate expert by your side can greatly help. If you are planning to purchase a home in Rochester Hills, Michigan I would be more than happy to assist you every step of the way. Feel free to give me a call at 919-452-6484 or send me an email at bkirksey@ethos-realestate.com and I will get back to you the soonest possible time.