When buying a home, your closing costs will typically consist of a variety of fees and expenses to pay for services associated with the transaction. These fees must be paid in full at closing and cannot be rolled into your mortgage. While the specific costs can vary depending on factors such as the property value, location, and mortgage lender, here are some common components of a buyer’s closing costs in Minnesota:

Loan-related Fees

These fees are associated with the mortgage loan and can include:

a. Origination Fee/Admin fee/Processing Fee: This fee covers the lender's administrative costs for processing the loan.

b. Discount Points: Buyers may have the option to pay discount points upfront to reduce the interest rate on the mortgage.

c. Appraisal Fee: This covers the cost of assessing the property's value.

d. Credit Report Fee: Lenders typically charge a fee for obtaining and reviewing the buyer's credit report.

e. Loan Application Fee: Some lenders may require an application fee for processing the mortgage application.

f. Underwriting Fee: This fee covers the lender's cost of evaluating and approving the loan.

g. Mortgage Insurance: If the down payment is less than 20%, the buyer may need to pay mortgage insurance premiums.

h. Title Insurance: The purchase of lender’s title insurance premium to protect against any title issues.

Title-related Fees

These fees are associated with ensuring a clear title and conducting the necessary searches. They can include:

a. Title Exam/Services: The cost of searching public records to verify the property's ownership history

b. Title Insurance: The purchase of owner’s title insurance premium to protect against any title issues. This is separate from the lender’s policy.

c. Closing fee: Payment to title company for providing closing service

c. Recording Fees: Fees charged by the county for recording the deed and other relevant documents.

d. Survey Fee: If a survey is required or desired, the buyer may need to cover the cost of a professional surveyor.

Government Fees

These fees are typically required by the state or local government and can include:

a. Mortgage Registration Tax (MRT): Minnesota imposes a mortgage registration tax on the principal amount of the mortgage. MRT is paid when recording a mortgage. The rate is 0.0023 of the mortgage amount. Hennepin and Ramsey Counties add an additional .0001 for an environmental response fund (ERF) per Minnesota Statute 383A.80.

b. Property Taxes: May need to be pre-paid at closing.

c. Transfer Taxes: Taxes imposed by the state or local government on the transfer of real estate ownership. In Minnesota, state deed tax is most often paid by sellers, however.

Prepaid Expenses

Buyers may need to prepay certain expenses at closing, such as property taxes, special assessments, homeowners insurance premiums, and mortgage interest for the remaining days of the month.

If you’re buying into a Common Interest Community (condo or townhouse) you’ll have Homeowners Association (HOA) dues which sometimes need to be paid in advance.

Miscellaneous Fees

Buyers may incur additional fees such as courier fees, wire transfer fees, conservation fees, attorney fees (if applicable), and other costs associated with the transaction.

Realtor Fees

If you are working with a real estate agent to find a home you most likely signed a contract at some point in the process. The most common type is a Buyer Representation Contract with an exclusive right to represent. Most brokerages in and around the Twin Cities charge buyers a retainer fee for their service, with a dollar amount written into this contract.

And, depending on what is agreed upon in your Buyer Representation contract, you might also pay your broker/agent for the service they provide.

What are seller-paids?

In a buyer’s market it is not uncommon to ask sellers to pay part or all of your closing costs, often referred to as seller-paids. You would simply write in a dollar amount or percentage of the price on the purchase agreement at the time of making the offer. Unfortunately for buyers, this hasn’t been the norm for a while. In a fiercely competitive market, asking for seller-paid closing costs puts buyers at a disadvantage if it lowers the seller’s net proceeds compared to competing offers.

It's important to note that the specific closing costs can vary, and buyers should receive a Loan Estimate and Closing Disclosure from the lender, outlining the estimated costs prior to closing. Working closely with a real estate agent and mortgage lender can help you understand the closing costs specific to your situation and ensure you are adequately prepared for the expenses associated with purchasing a home in Minnesota.

Banner photo by Georgie Cobbs on Unsplash