How Much Are Closing Costs in Minnesota?

Closing costs are fees and expenses incurred at the culmination of a real estate transaction. These charges are distinct from the property’s purchase price and down payment, encompassing services and taxes necessary to transfer ownership. Both buyers and sellers typically encounter these costs, which are fundamental to finalizing a property sale.

Understanding Closing Costs

Closing costs are a collection of fees and expenses that arise at the close of a real estate transaction. They cover the professional services and administrative tasks required to complete the transfer of property. These costs can broadly be categorized to include charges related to lending, title services, government taxes, and escrow management. The specific types and amounts of these fees can vary significantly based on the property’s location, the chosen lender, and the unique details of the transaction.

These fees compensate various parties involved in the home buying and selling process. Lenders charge fees for processing the loan, while title companies ensure the property’s legal ownership is clear. Government entities collect taxes and recording fees to legally document the transaction. Prepaid expenses, such as property taxes and homeowner’s insurance premiums, also form a part of closing costs, often collected to establish an escrow account.

Buyer Closing Costs in Minnesota

Buyers in Minnesota typically face closing costs ranging from 2% to 5% of the home’s purchase price. One notable Minnesota-specific cost is the Mortgage Registration Tax (MRT), which is a state tax paid on the amount of debt secured by a mortgage. The statewide rate for the Mortgage Registration Tax is 0.23% of the secured debt, though Hennepin and Ramsey counties impose an additional Environmental Response Fund Tax, bringing their total rate slightly higher. This tax is paid by the borrower when the mortgage document is recorded.

Loan origination fees are another common expense, typically charged by lenders for processing the mortgage application. These fees generally range from 0.5% to 1% of the total mortgage loan amount. Appraisal fees, which cover the cost of a professional assessment of the property’s value, average around $575 statewide. A credit report fee is also charged to obtain the buyer’s credit history.

Buyers also pay for a lender’s title insurance policy, which protects the lender in case of future title disputes. Recording fees for officially documenting the change of ownership are typically relatively small, but a necessary part of the process. Additionally, buyers often prepay several months of property taxes and homeowner’s insurance premiums into an escrow account. Survey fees may also be incurred if a new survey of the property is required.

Seller Closing Costs in Minnesota

Sellers in Minnesota generally incur closing costs that average around 3.01% of the home’s purchase price, not including real estate agent commissions. When factoring in commissions, seller closing costs can range from 6% to 10% of the sale price. The largest expense for sellers is typically the real estate agent commission, which averages 5.75% of the home’s sale price in Minnesota. This commission is usually split between the listing agent and the buyer’s agent.

Another significant Minnesota-specific cost for sellers is the State Deed Tax, also known as a transfer tax. This tax is imposed on the value of the real property transferred. The statewide rate for the State Deed Tax is 0.33% of the purchase price. Similar to the Mortgage Registration Tax, Hennepin and Ramsey counties levy an additional environmental response fund tax, increasing their rate slightly. The seller is typically liable for this tax.

Sellers may also pay for an owner’s title insurance policy, which protects them from claims against the property’s title prior to its sale. Prorated property taxes are common, where the seller pays their share of property taxes up to the closing date. Any outstanding mortgage balances must be paid off at closing, and homeowners association (HOA) fees or recording fees for releasing liens on the property are also covered if applicable.

Reviewing Your Closing Documents

Two primary documents provide a detailed breakdown of closing costs for buyers and sellers: the Loan Estimate and the Closing Disclosure. The Loan Estimate is a standardized three-page form that buyers receive within three business days of applying for a mortgage. It provides an estimate of the loan terms, interest rate, projected monthly payments, and estimated closing costs. Buyers should review this document carefully to understand the initial financial picture of their loan.

The Closing Disclosure is a five-page form that presents the final terms and costs of the home loan. Lenders are required to provide this document at least three business days before the scheduled closing date, allowing time for review. This document mirrors the structure of the Loan Estimate, making it easier to compare the estimated costs with the final figures. It details all charges, including loan fees, title service fees, and government taxes.

When reviewing the Closing Disclosure, pay close attention to the “Cash to Close” amount, which indicates the total funds the buyer needs to bring to the closing. The document also provides an itemized list of all fees and a comparison table showing how costs may have changed from the initial Loan Estimate. Comparing these two documents helps ensure accuracy and transparency in the transaction. Any discrepancies or questions should be addressed with the lender or settlement agent before signing.