Landscapes that include colorful mountainsides, bright fields, and stunning vistas – if you’re a homebuyer packing up and moving to Montana, we don’t blame you. While you may have done all the heavy lifting choosing where to live, saving for a down payment, and securing a home loan, you have another major financial hurdle to cross: paying for closing costs.
Closing costs cover all the fees homebuyers need to pay by closing day. It takes a village to help you buy property – you’ll need to pay your lender for setting up your mortgage, your appraiser and home inspector for scoping out the property, and your home insurance provider, for example. Don’t forget the taxman, too. Instead of paying each service provider individually, you’ll pay for these fees in a lump sum. As a rule of thumb, closing costs amount to 2-5 percent of the home’s purchase price, paid alongside the down payment.
If you’re buying a new home in Montana, NewHomeSource has assembled the following guide on how much you should be saving for closing costs, a breakdown of what’s generally included, and how you can potentially lower these costs.
How Much Are Closing Costs in Montana?
Closing costs in Montana run around $2,496 for an average home priced at $272,986, according to a 2021 report by ClosingCorp, which provides research on the U.S. real estate industry. That amount makes up 0.91 percent of the home’s price tag.
The Treasure State is in the right in the middle of the pack, ranking 28th for the most expensive closing costs. The national average is $6,087.
But homebuyers in Montana should plan on spending more than this estimate. ClosingCorp’s data excludes two major closing costs you’re bound to come across — loan origination fees (if you’re taking out a mortgage) and private mortgage insurance (if you have a down payment of less than 20 percent). Both these expenses will add thousands to your closing costs tab.
ClosingCorp also omitted regional expenses. In Montana, homebuyers may need to hire a property surveyor and buy additional insurance policies for flooding, wildfires, or other extreme weather.
Homes in Montana also command a hefty price tag these days: As of November 2021, the median home value for single-family homes was $301,233, with homes appreciating in value by 7.2 percent, according to federal data.
Keep in mind, closing costs will fluctuate greatly depending on the price of the home, its location, and the complexity of the sale.
What’s Typically Included in Montana’s Closing Costs?
When it comes to understanding the bill breakdown of your closing costs, the expenses start tallying up as soon as you apply for a home loan.
Here’s a closer look at some common charges you’ll encounter, including state-specific details.
Loan Origination Fees
Unless you’re buying your new home with cold hard cash, the first stop you’ll make in the homebuying process is to your lender. But getting a mortgage doesn’t come free — your mortgage broker will charge loan origination fees for all the administrative work involved from setting up your home loan application, preparing pre-approval letters for your house hunting to processing your funding at closing.
Estimate loan origination fees to run about 0.5 percent to 1 percent of the loan amount.
Credit Report Fees
When you apply for any type of credit, your lender will need to do their due diligence to make sure you’re a responsible borrower. This includes pulling your credit report from the various credit bureaus to see how you’ve managed debt over the past few years.
Your lender will bill you for the cost of pulling your credit report. Count on doubling this expense if there’s more than one person on the loan application.
Private Mortgage Insurance
If you aren’t providing a 20 percent down payment, your lender will expect you to buy private mortgage insurance, or PMI. PMI allows borrowers to qualify for a conventional loan even if they put down five to 19.99 percent of their mortgage. While you’re on the hook for this expense, the coverage protects your lender in case of default.
This cost isn’t included in the ClosingCorp tally of closing costs expenses, but PMI typically ranges from 0.25 percent to as high as 2.25 percent of your outstanding loan balance, depending on the size of your down payment and credit score.
While having an attorney on board to help with the entire closing process is mandatory in some states, Montana doesn’t follow this rule. You may still decide to hire a real estate attorney, especially if your home purchase is a complex one, such as if you’re buying a property that’s in foreclosure or out of state.
An attorney can help draft your purchase agreement, examine your mortgage contract, certify deeds, and review your home insurance and title insurance policies.
Ultimately, the cost for hiring a real estate attorney in Montana will vary, depending on the home’s location, what services you require, and how complicated your home sale is.
You’ll need to enlist the help of a title company to guide you through the checklist of things to complete.
Your title company will set up a neutral third-party escrow account for your payments due, including your earnest money deposit, down payment, home insurance, property taxes, other services. 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 sale.
It’s customary to split this cost between buyer and seller in Montana.
Homebuyers must pay for a title examination, which is an in-depth look at the property’s title history to verify that the seller has the right to transfer ownership to you. This is a crucial step in the homebuying process – you don’t want to hand over your hard-earned nest egg only to find yourself in a legal battle over ownership.
The title examination involves poring over historical records, deeds, and court records to verify the land isn’t tied up in ownership disputes, lawsuits, or unpaid taxes. You’ll need to pay for this step whether you’re buying a brand-new build or an existing home.
Once the title search is complete, you’ll need to cover your bases with title insurance for both you and your lender. Title insurance protects both parties in case something goes awry and there are claims on your property.
In Montana, it’s customary for the seller to pay for the title insurance policies but this isn’t a concrete rule. If you’re negotiating with the seller, this cost could shift to you for other concessions. Either way, it’s a one-time expense, so the insurance applies for as long as you’re the homeowner.
The property you’re buying also needs to clear an appraisal. Your lender will send a third-party appraiser to your new home to make sure it’s priced at the proper value. The lending institution needs to know they can sell the property and recoup their costs if you can’t keep up with your mortgage and default on your loan.
The appraiser will evaluate the home’s size and condition, as well as how it stacks up to homes priced similarly in the community, to determine its fair market value.
Your lender chooses the appraiser, so consult with them about how much this may cost.
A home inspection provides a different function from an appraisal. Home inspectors zero in on the health and safety of your potential new home. They’ll conduct a thorough walkthrough of the property to confirm everything is in good running order from the foundation to the roof.
Pay attention to your home inspector’s feedback: They will point out any existing issues as well as ones that could surface in the coming years, such as needing to replace major appliances or an aging roof. This is great intel you can flag to your seller so they can make repairs or adjust the price before finalizing the deal.
Real Estate Transfer Tax
Homebuyers in the Treasure State catch a lucky break – there are no real estate transfer taxes in Montana! Typically, whenever a home transfers hands, buyers and sellers incur a real state transfer tax, but Montana is one of about a dozen states that doesn’t have deed 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.
You may still incur a small recording fee from your local county for documenting the deed transfer in public records.
Property tax is a rite-of-passage for homeowners. In Montana, homeowners pay an average of 0.76 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.
They’re due each November 30 in Montana so make sure to circle that due date on your calendar.
By closing, you will need a homeowner’s insurance policy paid for and in effect for the year. Home insurance is a mandatory purchase before you can buy your house. This is another prepaid expense that can’t be rolled into your home financing.
Home insurance is crucial to have in effect by the time you take ownership because it covers any physical damage to your home caused by fire, wind, vandalism, or theft.
In Montana, it’s worth checking to see if you need additional policies. You may need to buy extended insurance policies in case of flooding, wildfires, or other extreme weather events. Your lender or home insurance provider may require a survey or elevation certification to categorize your home’s flood risk and insurance requirements.
Homeowner’s Association Fees
Roughly 40 percent of homeowners in Montana are part of a homeowner’s association (HOA). Based on these stats, there’s a good chance you may be required 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.
How Can I Lower My Closing Costs in Montana?
Is the sticker shock setting in? If you’re worried about how you’ll come up with the cash to close on your dream home, here are some key money-saving strategies.
Closing Cost Assistance
If you want to put a significant dent in your closing costs, look into Montana’s homeownership assistance programs. Financial assistance is up for grabs for first-time homebuyers and repeat homebuyers alike.
First-time homebuyers eligible for a Montana Housing home loan can also apply for down payment assistance via a second fixed-rate mortgage for up to five percent of the home’s sales price, for example. There’s also a zero percent deferred down payment assistance program available.
In addition to statewide programs, there are local homeownership programs in Montana, from Bozeman and Billings to Great Falls and Missoula.
Get Your Finances in Shape
The interest rate you secure is critical. If you have a high credit score, you can secure a lower interest rate, which will save you thousands over the lifetime of your mortgage.
Check your credit score to see if it needs some work or if it’s in good standing. Then focus on paying down your debts to keep your debt-to-income ratio low, and don’t skip any payments on existing loans.
Save as much as you can for your down payment, too. The closer you get to the 20 percent threshold, the less you’ll have to pay in PMI. Even if you only have a 15 percent down payment, once you hit the 20 percent equity mark, you’re off the hook for PMI.
Choose your service providers wisely, whether you’re shopping for a title company, an inspector, or a surveyor. Read reviews from previous customers, ensure they are appropriately accredited, and then look at price points and obtain quotes, so you know you’re getting the best deal.
You can also shop around for the best interest rate on your mortgage loan.
Back and forth negotiations are a part of the homebuying process, so you may be able to reassign some of your closing costs to the seller, especially if you’re in a buyer’s market.
Work with your seller to come to a compromise on who pays for what. If your home purchase is a fixer-upper, for example, you can ask the seller to cover portions of your closing costs so you can pay for repairs. If you’re buying a new home but need to pay for upgrades, you may be able to work out a deal with your builder to assume some of your closing costs.
You can also negotiate certain fees — this time with your lender. If you’re a long-time, loyal customer with multiple loan products you’re managing responsibly, you could ask your lender to remove some loan origination fees. The most obvious charges you can try to eliminate are often labeled as “junk fees,” such as rate lock fees, loan processing fees, and broker rebates.
Some homebuyers can opt into a “no-closing-cost” mortgage as a strategy to keep this expense at a minimum. With no-closing-cost mortgages, your lender agrees to pay for part or all of the closing costs, but you, in turn, pay a higher interest rate.
In the long run, this could cost you more money because of the bump in your interest rate, but for some homeowners, it may be their best choice.
Adding Closing Costs to Your Home Financing
If you don’t have the upfront cash to cover your closing costs, you may be able to roll this into your home loan. This means you’re off the hook for paying for these expenses on closing day, but you’ll make up for it via monthly mortgage payments that will be a bit higher. Ultimately, you’re paying interest on the closing costs tacked onto your first mortgage.
Check with your lender to see if this option is available. Keep in mind, not all closing costs can be included because some, such as homeowner’s insurance, must be paid upfront.
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.