Closing costs are the various fees and charges that buyers and sellers are required to pay to complete a real estate transaction. These expenses are a significant part of the home-buying process, but many buyers and sellers are unsure of what they entail.
Most closing costs are due on the day of closing, or settlement. This is when the title of the property is transferred from the seller to the buyer. The payments are typically wired to the receiving parties, or the buyer brings a cashier’s check to the closing appointment.
The critical question to ask, whether you’re a buyer or a seller, is, “How much are closing costs in Michigan?” In this article, we provide a breakdown of the different types of closing costs along with tips on how to manage these expenses.
Understanding Closing Costs in Michigan
Closing costs in Michigan are the sum of fees and charges that have to be paid to different stakeholders to finalize the real estate deal and transfer the ownership of the property. These closing costs are paid in addition to the net property amount.
In Michigan, sellers are typically responsible for most closing costs, including taxes and fees paid to real estate professionals. Buyers, on the other hand, shoulder closing costs related to their mortgage.
If you’re selling a home in Michigan, you can expect to pay around 8% to 10% of the agreement value in closing costs. On top of this, sellers are also expected to pay an additional 6.03% in realtor commission fees.
Average closing costs in Michigan for buyers range from 2% to 5% of the home’s purchase price. So, for a home valued at $237,236, a buyer’s closing costs may range between $4,500 and $13,000, while a seller may have to pay around $19,000 to $24,000.
Buyer's Closing Costs in Michigan
Below, we enumerate the typical closing costs for buyers in Michigan. Like seller closing costs, these are negotiable. Hiring a real estate agent can help you save on these costs.
Loan Origination Fees
The loan origination fee is payment made to mortgage lenders for executing the loan with other respective documentation and legal formalities. The loan origination fee in Michigan usually amounts to 0.5% to 1% of the mortgage loan amount.
Mortgage Escrow Account/ Impound Account
The mortgage lender reserves a portion of the buyer’s monthly mortgage payments in an escrow or impound account and is used to pay the property tax and homeowners insurance premiums. 1% of the purchase price is usually charged as fees.
Appraisal Fee
This fee is paid to the professional appraiser who assesses the home value and ensures the buyer gets the best competitive price. The cost ranges between $250 and $400 and varies depending on the property characteristics like its actual saleable area and geographical location.
Title Insurance
Title insurance protects the buyer against loss due to outstanding taxes, unpaid dues, default in the title, or any violations belonging to any previous owners. This costs between $200 and $250.
Seller's Closing Costs in Michigan
Sellers are also responsible for certain closing costs to legally transfer the home ownership to the buyer. Sellers closing costs in Michigan are typically deducted from their sale proceeds at the time of closing.
Realtor Commission
The seller pays real estate commissions to both the listing agent and the buyer’s agent. The real estate commissions in Michigan usually amount to 5% to 6% of the agreement value.
Home Inspection Fee
A home inspection allows the seller to identify any major defects and issues in the property, such as plumbing issues, water damage, mold, etc. Home inspection cost in Michigan is usually around $430.
Escrow Fee
This fee is charged by the escrow agent, an unbiased third party who helps the seller and the buyer finalize the real estate transaction. Escrow firms in Michigan typically charge 1% of the purchase price.
Michigan Transfer Taxes Explained
The real estate transfer tax in Michigan is a fee paid to the government when the ownership of a property transitions from the owner to the buyer.
Transfer tax is a common part of real estate transactions and varies depending on the property’s geographical location, as each jurisdiction sets its own rates and guidelines.
In Michigan, the responsibility of paying transfer taxes depends on the terms agreed upon in the real estate transaction. The seller is usually responsible for this cost but, if agreed upon by both parties, it can be shouldered by the buyer.
Michigan charges around 0.86% of the home’s sale price to transfer the title to the new owner. For example, a house sold for $257,300 would require $2,213 in transfer taxes.
Strategies for Managing Michigan Closing Costs
In a competitive market with limited housing inventory, sellers can negotiate with the buyer to cover some or all the closing costs. However, in a buyer’s market, sellers may find it difficult to persuade buyers to take on additional costs beyond the purchase price.
Sellers typically negotiate their realtor commission, the largest expense among seller closing costs.
Buyers, on the other hand, should do some research to see if they qualify for financial programs that can help cover closing costs and down payments.
There are several first-time homebuyer programs in Michigan that can help reduce homebuying costs. Many local counties and cities have their own programs as well and a real estate agent can help buyers apply for programs available in their area.
Whether you’re a buyer or a seller, working with a seasoned real estate agent can provide valuable insight into your negotiating position.
Conclusion
Whether you’re a buyer or a seller, it is important to understand the closing costs involved in a real estate transaction in Michigan.
If you’d like assistance with buying or selling a home in Michigan, our team can help. Please give us a call today at 248-780-0942 or send us a message using this form to schedule an appointment.
Frequently Asked Questions
What are typical closing costs for buyers in Michigan?
The typical closing costs for buyers in Michigan include loan origination fees, mortgage escrow account/ impound account, appraisal fee, and title insurance.
How much are closing costs for sellers in Michigan?
Sellers in Michigan pay around 8% to 10% of the agreement value in closing costs. On top of this, they are also expected to pay an additional 6.03% in realtor commission fees.
Who pays transfer taxes in Michigan?
In Michigan, the seller is usually responsible for paying transfer taxes but, if agreed upon by both parties, it can be shouldered by the buyer.
