Closing Costs - Who Pays and How Much?

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The parties to a real estate sale may negotiate for who will pay certain closing costs.  In the absence of an agreement, local custom calls for each party to pay those closing costs related to that portion of the transaction for which they are responsible.  Some of those costs and who usually pays them are described below. 

An abstract is a summary of the history of ownership of the property.  If an existing abstract needs to be updated or continued, the cost will be lower than if a complete, new abstract must be prepared.  An update usually costs between $75 - $150.  A new abstract in northern Minnesota usually costs between $250 - $400.  The cost for an abstract is usually paid by the Seller.

Down Payment
Most lenders require a borrower to pay at least 10% of the purchase price as a down payment but certain loans or government loan programs require less or even no down payment.  For example, check out the Home Stretch Program from KOOTASCA Community Action, Inc.

Loan Origination Fee
A loan origination fee is a lender's fee to a borrower for establishing a new loan. Conventional loan origination fees often range from 1 to 3+ points. A point is 1% of the loan.

Appraisal Fee
An appraisal fee is paid to an appraiser to obtain an estimate of market value upon which the lender will base the loan amount. The cost is about $300-$400. This fee is usually paid by the buyer.

Credit Report
A credit report is an evaluation of the buyer's credit habits made by a credit bureau for the lender. The cost is $50-$60 and is usually paid by the buyer.

Tax Service Fee
A tax service fee is a charge of approximately $75 by a tax service company to verify to the lender that taxes have actually been paid when due or are due to be paid by a borrower or mortgage company if impounding.

Inspection Fees
Inspections the buyer may choose to have done may include a general property inspection that usually cover foundation, electrical, plumbing and overall construction at a cost of $200 -$300. Roof inspections cost $75-$125. Septic inspections may cost between $200-$400.

Title Insurance
Title insurance covers title defects and even certain unrecorded liens, is based on the loan amount or purchase price and is required by almost all lenders. The cost depends on the amount of the loan, for a lender's policy, or the purchase price, for an owner's policy.  A title insurance policy for a lender does not insure owners so an owner may want to buy her own policy.  The cost for title insurance is usually paid by the buyer/borrower.

Title Examination Fee
The title to the property is reviewed for liens, mortgages, easements or defects.  This fee is sometimes added directly to the cost of title insurance or may be a separate item on the settlement statement.  This is usually paid by a buyer and costs between $150 - $200.

Deed Preparation
This is like a bill of sale for real estate.  This cost ($60) is usually paid by the seller.

Plat Sketch
A plat sketch is a sketch of the boundaries of a piece of real estate used to determine whether buildings or other improvements are actually located on the property and that the neighbors' buildings or improvements do not encroach on the property to be financed.  The cost for a plat sketch (between $60 -$75) is usually paid by the buyer. 

Deed Tax
A deed tax is a state tax.  The cost is $3.30 per $1,000 of the selling price.  This tax is usually paid by the seller.

Miscellaneous Costs & Fees
An estimate of $150 should be considered to cover other items such as recording fees and document preparation, as well as allowing for variations from these other estimates.

Hazard Insurance Reserve
If hazard insurance is to be paid monthly to the lender, a portion of the next premium is collected for the escrow account in order to ensure that enough money is impounded to pay the premium when it comes due.  The buyer will usually need to either provide or pay for coverage for the 1st year.

Recording Fees
Charges by the County Recorder to record deeds, mortgages, satisfactions of mortgage or other documents required to clear or transfer title are collected by the closing agent.  In most Minnesota counties, the cost is $20.00 for each document and each party may be required to record one or more documents, depending on the transaction.

Prepaid Interest
A borrower often must pay interest from the date of closing to 30 days prior to the first regular mortgage payment. 

Mortgage Insurance
Mortgage Insurance usually is required on conventional loans greater than 80% of appraised value. The cost may range from 1/2% to 1% per year and 14 months premium is often collected in advance. This is coverage for the lender in case of default.  The premium is paid by the buyer.

Mortgage Registration Tax
Mortgage registration tax is a state tax charged by the State of Minnesota for giving a mortgage.  The tax amounts to 23 per $100 of mortgage amount.  This tax is usually paid by the buyer/borrower.

Tax escrow (impound)
If the new loan is going to have an escrow account for the payment of taxes and insurance, the lender will require from 2-10 months taxes to be deposited at the time of closing, depending on when the next taxes or insurance need to be paid out of the escrow account.  These sums are paid by the buyer/borrower.

Closing Fee
Closing fees are paid to the closing agent for closing the transaction.  These fees range from $150 - $350, depending on the complexity of the closing. Usually the buyer pays a fee to close a loan if there is financing and a seller pays a fee for the work needed to transfer ownership of the land to the buyer.  Each party may hire their own closing agent, though, to ensure that their part of the transaction is properly handled.  Or the parties may choose to hire the same closing agent to close both the seller's and the buyer's portion of the transaction.

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