How Much are Closing Costs When Buying a Home?
Closing Costs are expenses that are necessary to the home buying process and are paid when the purchase or sale of a home completes, which is known as the closing, thus the term "Closing Costs." Closing costs may include payments to key members of your home team who have helped you along the home buying journey, or how you meet the lenders requirements for funding the loan, or how the government receives payment for any government imposed fees. Since Closing Costs are paid at the Closing of the home purchase, it is important to understand there are other expenses that buyers may incur outside of the Closing.
What Are "Closing Costs" and Why You Need to Plan for Them?
Let’s start with a definition. Closing costs are the final set of required fees and expenses paid by both the buyer and seller at the closing table (the final, legal handoff of the house). Typically buyers and seller will each have closing costs associated with their sides of the transaction.
Generally for home buyers, closing costs can be described as the expenses that are necessary to the home buying process and are paid when the purchase or sale of a home completes, which is known as the closing, thus the term "Closing Costs." Closing costs may include payments to key members of your home team who have helped you along the home buying journey. Closing costs are also how you meet the lenders requirements for funding the loan, or how the government receives payment for any government imposed fees. Since Closing Costs are paid at the Closing of the home purchase, it is important to understand there are other expenses that buyers may incur outside of the Closing.
You need Financial Wellness (which we taught you how to build in [MN Financial Wellness: Your Plan to Save | Knowledge Center]) to manage these costs. A bank (lender) rewarding pre-approved buyers who have executed the playbook, a concept we covered in [The Minnesota Pre-Approval Playbook | Knowledge Center], counts this as a required wealth-building strategy.
In Minnesota today, closing costs typically range from 2% to 5% of the total loan amount.
Part 1: The 4 Main Types of MN Closing Costs
Let's take a look at the 4 main types of closing costs.
1. Bank and Lender Fees (For the Loan)
These are the fees the bank charges you to do all the work, from processing your Credit Score and Debt-to-Income (DTI) reports to formally providing the funds.
You can expect these fees:
Loan Origination fee(fancy name for the bank's work),
Appraisal fee (an expert verifies the house value)
Credit Report fee,
Flood Certification.
This is not an all encompassing list of fees, as additional fees may apply given your specific scenario.
2. Legal, Title, and Escrow Fees (For the Legal Handoff)
These are the fees charged by the Title Company, the team of professionals who ensure the transfer of ownership of the home your are buying is legal and safe.
Fees You May Encounter:
Title Search (checking that no one else owns the home),
Title Insurance (this protects you and the bank from "What If?" panic of someone else claiming ownership!).
This is not an all encompassing list of fees, as additional fees may apply given your specific scenario.
3. Government and Deed Transfer Taxes (The required MN plays)
These fees are specifically for our State, County, and City governments. .
Example of Fees in This Category:
MN Mortgage Registry Tax (a mandatory state tax based on your loan size) and the
County Recording Fee.
4. Special, Specialized "Other" Fees
These fees are specific to Minnesota environmental or municipal realities. If you don’t have a huddle play for these specialized costs, they create profound anxiety.
