Along with affordable housing and a low cost of living, Missouri has the country’s lowest closing costs. But for homebuyers saving up for a down payment, new furniture, and moving expenses, closing costs can still be a sizeable amount.
Closing costs are one of the final expenses that homebuyers need to save before securing the keys to their new home. Think of the fees you are billed throughout the homebuying journey, from applying for a mortgage to conducting a title search to getting the property appraised. Various taxes and insurance premiums can be included in the closing costs tab too. For convenience’s sake, these fees are cobbled together and paid on closing day alongside your down payment. All in, closing costs typically amount to 2 percent to 5 percent of the home’s purchase price.
If you’re curious about how much closing costs are in Missouri, here’s our guide on how much you should save, a breakdown of what’s included on your tab, and how homebuyers in this midwestern state can potentially lower these costs.
How Much Are Closing Costs in Missouri?
Missouri is home to the country’s lowest closing costs, at an average of just $1,290 for a home priced at $177,915, according to a 2021 report by ClosingCorp, which researches residential real estate data. That makes up 0.72% of the home price.
For comparison’s sake, the national average is $6,087 while in New York, where closing costs are the priciest, the average bill is $8,256. Overall, it’s safe to say closing costs are cheaper in the Midwest – Indiana, Iowa, North Dakota, South Dakota, and Wisconsin are among the top 10 states that have the lowest costs. The year before, ClosingCorp ranked Missouri as the second state with the cheapest closing costs, right after Indiana.
While closing costs won’t break the bank in Missouri, homebuyers should plan to spend more on this expense than this initial estimate. ClosingCorp’s data excludes common closing costs expenses, such as loan origination fees and private mortgage insurance for buyers putting down less than 20 percent. These costs will add hundreds to your closing costs tab.
Like in much of the country, home prices in Missouri have increased: As of October 2021, the average selling price for homes was $258,294, according to Missouri Realtors. With these updated figures in mind, closing costs could be somewhere between $5,165 and $12,914.
Keep in mind, closing costs will fluctuate greatly depending on the price of your home and the complexity of the sale.
What’s Typically Included in Missouri’s Closing Costs?
With closing costs that could be as high as $13,000, homebuyers in Missouri may be wondering what they’re paying for. Typically, closing costs can be divided into three categories: property-related fees, mortgage-related fees, and annual fees.
Let’s look at some of the common closing costs you’re likely to incur in Missouri, including the state-specific details.
Unless you have the cold hard cash to buy a new home, your first stop in the homebuying process will be to a lender to apply for a mortgage. These are some of the lender fees you might need to pay:
Loan Origination Fees
Loan origination fees are estimated to be about 0.5 percent to 1 percent of your total loan amount. In a nutshell, these fees are for preparing your mortgage, from the application to producing preapproval letters for your house hunting and processing your funding at closing.
Credit Report Fees
During the underwriting process, your lender needs to check your credit report to see how you’ve managed debt in the past. They’ll charge you for the fees involved with requesting your credit report from the various credit reporting bureaus. If more than one borrower is on the loan application, double this cost.
Private Mortgage Insurance
Homebuyers who don’t provide a 20 percent down payment must buy private mortgage insurance, or PMI. With PMI, lenders will qualify homebuyers for a home loan even if they put down only five to 19.99 percent. While you’re paying for the insurance, PMI protects your lender in case you default on your loan. Once you hit the 20 percent mark in home equity, you no longer need to carry PMI.
PMI usually ranges from 0.25 percent to 2.25 percent of your outstanding loan balance.
While it isn’t mandatory in Missouri, you may decide to hire a real estate attorney to help with legal documents, especially property transfer documents.
An attorney can draft your purchase agreement, certify deeds, and review your home insurance and title insurance policies. Your real estate agent or title company may also recommend that you hire a lawyer if your home purchase is a complex one, such as if you’re buying a property that’s in foreclosure or buying from outside of the state.
The cost for hiring a real estate attorney will vary, depending on where you are in the state, what you need your lawyer to do, and the level of complexity. You’ll find some real estate lawyers charge by the hour while others charge a flat fee.
You may decide to hire a title company or escrow agent to manage your home purchase and make sure you get to closing on time without any delays.
One of their key roles is to set up a neutral third-party escrow account for your earnest money deposit, payment for various fees, and down payment. These funds won’t be released until the ink is dry on your home purchase and all parties involved have met their conditions on the home sale.
Your title company will also guide you through the checklist of things you need to complete by closing. It’s customary to split this cost between buyer and seller.
Before you make the biggest purchase of your life, you’ll need to hit some pivotal checkpoints to make sure your new home is a sound investment. They include:
Title Search and Title Insurance
You must pay for a title examination, which verifies that the title to the property you’re buying is free and clear from other claims to ownership, unpaid taxes, or outstanding lawsuits. In some cases, this may be a purchase your lender requires you to make. Either way, it’s worth every penny because the last thing you want is to sink your life’s savings into a property only to deal with ownership disputes later.
Once the title search is complete, you’ll need to buy owner’s title insurance and lender’s title insurance to cover both you and your lender. This type of insurance is a one-time expense, and the policy is in effect until you sell the property.
Real Estate Transfer Tax
Homebuyers in Missouri can breathe a big sigh of relief: you’re off the hook for real estate transfer taxes. Typically, whenever a home transfers hands, buyers and sellers incur a real state transfer tax, but Missouri is one of several states that doesn’t have mortgage or transfer taxes.
This will save you a fair bit of cash – in some states, transfer taxes are as high as $3.75 for every $500 of property value, with additional transfer taxes from local counties.
Before your lender transfers the funds for your home purchase, they will send a third-party appraiser to your potential home to make sure it’s priced appropriately. If you can’t keep up with your mortgage payments and your lender needs to foreclose on your home, they need to know they can sell the property to pay off your loan.
The appraiser will scan the home, its size, features, and condition to see how it stacks up to homes priced similarly in the community and determine its fair market value.
Your lender gets their pick for an appraiser, but you’ll foot the bill.
Before finalizing the home sale, you’ll need the green light to proceed with your purchase from a home inspector. The inspector’s job is to ensure you’re buying a property that’s in great condition, from the foundation to the roof and everything in between. They will also zero in on any issues you may want to flag to the seller to negotiate repairs or reductions in price.
You can shop around for a home inspector. Price points will vary depending on location and home size.
Closing costs include a handful of fees you’ll need to start paying annually. The trio of closing cost expenses below is prepaid, which means they must be purchased at closing and can’t be rolled into your home financing.
Missouri has one of the lowest median property tax rates in the country; homeowners pay an average of 1.01 percent of their property’s assessed market value – according to the Tax Foundation, a decades-old tax policy non-profit. The rate will vary because country taxes may be levied.
At closing, the first year of coverage for your homeowner’s insurance policy must be paid for and in effect. This is a typical requirement before your lender issues the funds.
It’s great for peace of mind for you, as homeowner’s insurance will cover any physical damage to your home caused by fire, wind, vandalism, or theft. You may even want to buy additional policies for your home depending on what you need insured.
Homeowner’s Association Fees
About 20 percent of homeowners in Missouri are part of a homeowner’s association (HOA). Based on these stats, there’s a chance you may have to pay for HOA fees in your closing costs.
HOA fees cover the cost of keeping your community running, from trash removal and security to community amenities, such as fitness centers and community parks.
When you’re house hunting, make sure you ask about HOA fees upfront so you know how much you may be spending on this cost.
How Can I Lower My Closing Costs in Missouri?
While Missouri has affordable closing costs compared to other states, homebuyers are always looking for ways to lower their overall expenses. Here are key strategies you ought to try that may save you some cash:
Closing Cost Assistance
Researching Missouri’s homeownership assistance programs and applying to those you’re eligible for is a great way to make a significant dent in your closing costs.
There are statewide homeownership programs run by the Missouri Housing Development Commission that provide forgivable second loan mortgages of up to four percent of your home loan to help with closing costs. Local programs are also available from Columbia to Jefferson City, Springfield, St. Louis, and St. Charles County.
Improve Your Credit Score
When you’re shopping for a mortgage, your aim is to show lenders you’re a low-risk borrower and hopefully, they will offer you the lowest interest rate. Being cognizant of this could save you thousands of dollars in interest over the lifetime of your loan.
Make sure you have an excellent credit score and steer away from late or missed payments on your existing debts. Save as close to the 20 percent down payment threshold, too. This way, you’ll pay less in PMI.
Whether you’re shopping for a lender, title company, home inspector, or insurer, do your homework to find the best deal. Confirm that service providers are accredited, with great reviews, then ask for quotes from your top choices.
Check out referrals from your lender or title company, too. They could have go-to professionals whom they’ve approved with discounts for referrals.
If you have an established relationship with your lender, it’s worth negotiating the removal of some fees for setting up and processing your loan. The most obvious charges you can try to eliminate are rate lock fees, loan processing fees, and broker rebates.
You can also ask your lender to stagger these costs during the homebuying process.
If you’re in a buyer’s market, ask if the seller is willing to compromise. You could, for example, submit a full-price offer on a home with a caveat that the seller covers all the closing costs. Or you could ask your builder to pay a portion of your closing costs so you can free up cash for upgrades on a new-build home.
Adding Closing Costs to Your Home Financing
Homebuyers can roll some of their closing costs into their home loan, so they’re paid for as part of their monthly mortgage payments instead of as a lump sum on closing day.
Keep in mind, you’ll end up paying interest on your closing costs across the lifetime on your loan. Prepaid expenses, such as property taxes and homeowner’s insurance, can’t be rolled into home financing.
With a “no-closing-cost” mortgage, your lender agrees to pay for part, or all, of your closing costs. In turn, you pay a higher interest rate on your mortgage.
Run some calculations before you decide that this is the best route for your bottom line. In the long run, this could cost you more money because of the bump in your interest rate.
Carmen Chai is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. For NewHomeSource, Carmen covers a variety of topics, including insurance, mortgages, and more.