How Much Are Closing Costs in Minnesota?

When buying or selling a home, closing costs are a collection of fees and expenses beyond the agreed-upon purchase price. Understanding these charges is important for navigating a real estate transaction.

Understanding What Constitutes Closing Costs

Closing costs are a compilation of various fees charged by multiple parties involved in a real estate transaction. These fees are typically collected by entities such as lenders, title companies, real estate agents, and government agencies. They cover the administrative and legal processes necessary to transfer property ownership. The allocation of these costs between buyers and sellers often varies, influenced by local customs, transaction type, and negotiations.

Common Categories of Closing Costs

Closing costs encompass a range of fees that fall into several broad categories, reflecting the diverse services required to finalize a property transfer.

Lender Fees

Lender fees constitute a significant portion of closing costs for buyers obtaining a mortgage. These charges cover the administrative work associated with processing the loan. Examples include loan origination fees, which compensate the lender for creating the loan, and underwriting fees for evaluating the borrower’s creditworthiness. Additionally, buyers might encounter discount points, which are optional fees paid to reduce the interest rate, along with appraisal fees to determine the property’s market value and credit report fees to assess the borrower’s financial history.

Title and Escrow Fees

Title and escrow fees ensure the legal transfer of property and protect against ownership disputes. Title insurance, typically comprising both an owner’s policy and a lender’s policy, safeguards against future claims to the property’s title. Title searches are conducted to verify clear ownership and identify any existing liens or encumbrances. Escrow services involve a neutral third party holding funds and documents until all conditions of the sale are met. Closing agent fees compensate the professional who oversees the final signing of documents and disbursement of funds.

Prepaid Expenses

Prepaid expenses are costs paid at closing that cover items accruing over time, ensuring continuity of services and financial obligations. This category often includes property taxes, where a portion of the upcoming tax bill is collected to establish an escrow account. Homeowner’s insurance premiums for the first year are also paid upfront, providing immediate coverage. Additionally, a portion of the mortgage interest for the remainder of the month in which closing occurs might be collected.

Other Fees

Other fees can arise depending on the transaction’s specifics and local practices. Attorney fees may be incurred for legal review of contracts and guidance. Survey fees confirm property boundaries and identify any encroachments. Inspection fees, while often paid outside of closing, cover professional assessments of the property’s condition.

Minnesota-Specific Closing Costs

Minnesota Deed Tax

Minnesota real estate transactions include specific state-mandated taxes that contribute to overall closing costs. The Minnesota Deed Tax is a transfer tax applied to the value of real property when ownership is transferred. This tax is typically paid by the seller and is calculated at a rate of 0.33% of the sale price. For deeds valued at $3,000 or less, a minimum deed tax of $1.65 applies. While the seller is ultimately liable, the purchase agreement can assign this responsibility to the buyer through negotiation.

Minnesota Mortgage Registration Tax (MRT)

The Minnesota Mortgage Registration Tax (MRT) is imposed when a mortgage document is recorded. The borrower is responsible for paying the MRT. This tax is calculated at a rate of 0.23% of the total debt secured by the mortgage. For example, a $260,000 mortgage would incur an MRT of $598. In Hennepin and Ramsey counties, an additional Environmental Response Fund (ERF) tax of 0.0001% applies to both the deed tax and the mortgage registration tax.

Estimating Your Closing Costs in Minnesota

Estimating closing costs in Minnesota involves common fees and state-mandated taxes. For buyers, these costs generally range from 2% to 5% of the home’s purchase price. Sellers typically face higher closing costs, ranging from 6% to 10% of the home’s sale price, which usually includes real estate agent commissions. Excluding realtor fees, seller closing costs average around 3.01% of the home’s selling price.

The total amount of closing costs can fluctuate based on several factors. A higher home purchase price or a larger loan amount will directly increase taxes and fees calculated as a percentage of these values. The type of loan secured, such as a conventional, FHA, or VA loan, can also influence specific lender fees and insurance requirements. The particular lender chosen and any negotiated terms between the buyer and seller can impact the final cost distribution.

To provide transparency, lenders are required to provide borrowers with a Loan Estimate document within three business days of a mortgage application. This form details the estimated interest rate, monthly payment, and total closing costs. The Loan Estimate itemizes projected costs, differentiating between those the borrower can shop for and those that are fixed. While a Good Faith Estimate (GFE) was previously used for most mortgages, it is now primarily applicable to reverse mortgages and certain healthcare estimates.