Closing Costs in Michigan Explained — What West Michigan Homebuyers Should Watch Out For

When it’s time to finalize your home purchase, there’s a final step that might catch you by surprise — closing costs. Understanding these costs can make a difference in your home buying experience, ensuring you’re well-prepared for the final expenses. Here’s a breakdown of what you need to know about closing costs in Michigan and what fees might show up in your closing documents.

 

What Are Closing Costs & Why Do They Matter?

Think of closing costs as the finishing touches on your home purchase. These fees cover the essential services and documentation needed to make your new home legally yours. From title insurance to loan origination, each item plays a role in securing your property. While some fees might seem small individually, they can add up quickly, so it’s essential to know what to expect.

 

Who Pays for What? Key Players in Closing Cost Fees

In most cases, buyers are responsible for the majority of closing costs, but some expenses might be shared with or paid by the seller. Here’s a look at how these responsibilities generally split:

Commission on the Sale
Many real estate transactions include a real estate agent’s commission (if an agent was used), which is included in the closing costs. Although historically, the seller paid commission to both the listing and buyers agents, as of 2024 the buyer and seller are each responsible for their agent’s commission unless negotiated otherwise. It is however, extremely common for the seller to offer compensation to the buyer’s agent.

Title Insurance
This insurance protects your ownership of the home by looking for (and protecting you against) past liens or legal issues with the property. While buyers typically pay for their title insurance, some sellers may contribute depending on negotiations.

Home Inspection & Appraisal Fees
Home inspections and appraisals are crucial for understanding the condition and fair market value of the property. The buyer is typically responsible for both of these fees. The appraisal fee is usually tied into the closing costs, where the inspection is usually paid for at the time of the inspection.

 

A Breakdown of Common Closing Fees

Title Search & Title Insurance
A title search confirms that the property’s ownership history is clear and free of issues. Title insurance, meanwhile, protects you if any disputes arise in the future. This is one fee that ensures your ownership is solid and uncontested.

Appraisal & Inspection Fees
The appraisal confirms the property’s market value, while the inspection checks its condition.

Property Taxes & Insurance Prepaids
Some upfront costs, like property taxes and homeowners’ insurance, might need to be paid at closing. These can vary by area and property type.

Recording Fess & Transfer Taxes
These government fees cover the cost of legally recording the change of ownership. The specific amount depends on the property’s location. Some states have higher fees.

 

How Much Should You Expect to Pay in Closing Costs?

Closing costs generally range from 2% to 5% of the home’s purchase price. For a $300,000 home in Michigan, for example, you could expect closing costs between $6,000 and $15,000. Remember, these fees can vary widely based on location, loan type, and Lender practices, so it’s worth consulting with your mortgage team to get an accurate estimate.

 

Reducing Closing Costs with Seller Concessions

Closing costs might seem like a fixed expense, but with the right approach, you can manage and even reduce them. In a buyer’s market, you might be able to take advantage of seller concessions — where the sellers agree to cover part of the closing costs to secure a quick sale. Talk to your real estate agent about negotiating these concessions as part of your offer.

 

Closing Costs Unique to Michigan Homebuyers

While closing costs are largely similar across the country, Michigan buyers should be aware of a few unique considerations. For instance, some counties in Michigan have specific transfer taxes or recording fees that may vary by area. Additionally, Michigan requires certain upfront tax payments at closing, especially if you’re closing near the end of the tax year. Your Lender and real estate agent can provide more insights based on your specific location.

 

Final Thoughts on Closing Costs

At Treadstone Mortgage, we believe that understanding closing costs doesn’t have to be overwhelming. Armed with the right information, you’ll be able to approach the closing process with confidence, knowing exactly what to expect and where your money is going. If you have questions about closing costs or how to manage them, our team of mortgage professionals is here to guide you every step of the way.

 

FAQs

Can closing costs be rolled into the mortgage?
In some cases, yes, this can increase your loan amount but allows you to avoid paying some costs upfront. However, this might not be available for all loan types, and it often depends on your Lender and loan terms.

Are closing costs tax-deductible?
Generally, most closing costs are not tax-deductible. However, specific fees, such as prepaid interest (also called “points”) and property taxes, may be eligible for tax deductions. That being said this is not tax advice and we would recommend contacting a CPA for more information.

What are “prepaids” in closing costs?
“Prepaids” are costs you pay upfront at closing for expenses that will come due after closing. These may include property taxes, homeowner’s insurance, and mortgage interest. These are different from other closing costs because they cover future expenses, not services rendered at closing.

What is title insurance and what does it cover?
Title insurance protects you and your Lender from potential ownership disputes or claims on the property after you buy it. It’s a one-time fee paid at closing that ensures you won’t incur legal costs if someone challenges your ownership. Title insurance is essential because issues like clerical errors or unknown heirs can arise even after a thorough title search.