Owner Financing Closing Costs Explained

Owner Financing Closing Costs Explained

When buying a home through owner financing, many buyers assume they’ll save money because there’s no bank involved. While it’s true that owner-financed homes often have fewer fees than traditional mortgages, there are still closing costs to consider. Understanding these expenses upfront helps you budget properly and avoid surprises at signing.

This guide breaks down owner financing closing costs explained—what they are, who pays them, and how they differ from conventional home purchases.

What Is Owner Financing

Owner financing, also known as a Contract for Deed or seller financing, is a real estate arrangement where the seller finances the purchase directly for the buyer. Instead of a bank loan, the buyer makes monthly payments to the seller based on agreed terms.

This option benefits buyers who may not qualify for traditional loans due to poor credit, self-employment, or lack of a long credit history.

Do Owner-Financed Homes Have Closing Costs

Yes. Even without a bank or mortgage lender, owner-financed transactions still involve legal paperwork, title transfers, and recording fees—all of which contribute to closing costs.

However, these costs are often lower and more negotiable compared to conventional closings because there’s no third-party lender setting fixed charges.

Typical Owner Financing Closing Costs

Owner-financed closings generally include:

• Title search and insurance fees 
• Document preparation and attorney review 
• Recording fees with the county 
• Appraisal or inspection (optional but recommended) 
• Property taxes and insurance escrow (if applicable) 
• Seller’s administrative or service fees 

Each transaction is unique, so costs vary based on location and contract terms.

Title Search and Title Insurance

A title search ensures the property is free from liens, unpaid taxes, or ownership disputes. While banks require this for mortgage approvals, it’s equally important in owner-financed sales to protect both buyer and seller.

Title insurance adds an extra layer of protection by covering legal or financial losses if title issues arise later.

Document Preparation and Legal Fees

Even though owner financing skips traditional lending paperwork, you’ll still need legal documents such as:

• The Contract for Deed or Promissory Note 
• Disclosure statements 
• A Memorandum of Contract for recording 

Hiring an attorney or working with an experienced company like Contract For Deed LLC ensures that all paperwork complies with Minnesota law and protects both parties’ interests.

Recording Fees

In Minnesota, Contracts for Deed must be recorded with the county recorder’s office within four months of signing. This process makes the buyer’s ownership interest public and protects their rights.

Recording fees are typically modest—usually ranging from $50 to $100—but are an essential part of closing costs.

Appraisals and Inspections

While not always required, home inspections and appraisals are smart investments for buyers. An inspection uncovers any hidden property issues, while an appraisal confirms that the agreed purchase price matches the property’s market value.

Skipping these steps could lead to unexpected repair costs or overpaying for the home.

Property Taxes and Insurance

Even in owner-financed deals, buyers are usually responsible for property taxes and homeowner’s insurance. Sometimes, these are included in the monthly payment if both parties agree to an escrow arrangement.

Discuss these details before closing to avoid confusion later.

Negotiating Closing Costs in Owner Financing

Unlike traditional mortgages, owner-financed closings are flexible and negotiable. Buyers and sellers can decide:

• Who covers which costs 
• How to divide attorney or recording fees 
• Whether to waive optional expenses like appraisals 

This flexibility makes owner financing especially appealing for buyers on a budget.

Who Pays Closing Costs in Owner Financing

It depends on the agreement. Typically:

• Buyer pays: title search, insurance, recording, and attorney fees 
• Seller pays: property taxes up to the closing date, document preparation, and sometimes attorney fees 

The final allocation should be clearly stated in the written contract.

Estimated Total Cost at Closing

Closing costs in an owner-financed sale usually range from 1% to 3% of the home’s purchase price, depending on location and services used.

For example, on a $200,000 property, closing costs might total between $2,000 and $6,000—often far less than what traditional mortgage borrowers pay.

How Contract For Deed LLC Simplifies Closing Costs

At Contract For Deed LLC, we simplify the entire owner financing process for Minnesota buyers by:

• Preparing all legal documents accurately 
• Handling county recording and title registration 
• Ensuring transparent breakdowns of every fee 
• Helping buyers understand taxes, insurance, and payment structures 

This ensures a smooth, legally compliant transaction with no surprise expenses.

Why Understanding Closing Costs Matters

Knowing what to expect at closing helps you:

• Budget more effectively for your purchase 
• Avoid disputes over who pays which fees 
• Confirm that your agreement complies with Minnesota law 
• Protect your investment and future ownership rights

Take the Next Step Toward a Smooth Closing

If you’re planning to buy a home through owner financing, understanding your closing costs is key to a stress-free purchase. At Contract For Deed LLC, we handle every step—from contract preparation to recording—so you can move forward confidently.

Contact us today to learn more about owner financing closing costs and start your journey toward secure homeownership in Minnesota.