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How to Lower Your Closing Costs in Minnesota: 7 Tips for Homebuyers

Updated: Jul 18

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Homebuyers in Minnesota get to enjoy some of the best that the United States has to offer. Amazing wilderness, wildlife, and the beautiful Twin Cities are just some of the features that make the Land of 10,000 Lakes so beautiful.


Economically, the state is home to some of the most recognizable brands, including UnitedHealthcare, Target, and BestBuy.


All of these factors cumulatively make Minnesota one of the best places to live in the entire country. Of course, all of this can make the homebuying process really competitive (and expensive). This makes it really important that you lower your homebuying expenses however possible.


Today, I'm back to talk about closing costs in Minnesota, and present you with 7 tips to lower your closing costs.


 

Table of Contents


  1. What are closing costs?

  2. How much are closing costs in Minnesota?

  3. What expenses make up closing costs?

  4. 8 tips to lower your MN closing costs


 

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What are closing costs?


When you buy a home, you'll need to pay what is known as closing costs. Closing costs are fees and expenses that you'll incur as you complete the homebuying process. More specifically, expenses you've incurred to get your mortgage, transition the home's title into your name, and officially transfer ownership of your new home to you.


These fees will be paid at your closing, when you take ownership of your home, and will be owed to the following parties:


  • Your mortgage lender

  • Your real estate attorney/title company

  • Other miscellaneous parties


In addition to your closing costs, you'll likely also need to pay your down payment at the time of your close.


Related: A Guide for First-Time Home Buyers



How much are closing costs in MN?


Closing costs in Minnesota vary by home purchase. But in general, homebuyers in the Land of 10,000 Lakes can expect to pay 2-4% of their new home's purchase price in closing costs.


This said, somebody buying a $300,000 home in Minnesota can expect their closing costs to be between $6,000 and $12,000.


Of course, each home is different, and since certain expenses are sale price dependent and others are not, it is really difficult to predict with real certainty what your true expenses may be.


Your total amount will vary based on a number of variables, including:


  • What fees your lender charges for/doesn't charge for

  • When in the month you close

  • What title company you use

  • The property taxes in your county



What expenses make up closing costs?


There are three major categories of closing expenses that cumulatively make up your closing costs. These categories are:


  1. Lender-based fees

  2. Property-based fees

  3. Annual fees


Let's break these categories down one at a time.



1. Lender and mortgage based closing costs


When you buy a house in Minnesota (and nationwide for that matter), the bank or mortgage lender that you work with will charge you for a variety of services performed in order to get your mortgage squared away. The most expensive of these fees is likely to be a loan origination fees, but there may be plenty others as well.



Loan origination fee


You're likely to encounter a loan origination fee while finalizing your mortgage. Usually costing between 0.5 and 1% of the loan's value (sale price minus your down payment), it is not unusual for this fee to cost in the thousands of dollars.


Loan origination fees reimburse the bank for services related to establishing your mortgage.


Your loan origination fee may include things like application and underwriting fees, or you may see them broken down separately. It may be lender specific.

Title company/attorney fees


When you buy your home, you are likely to need an attorney or title company to complete services related to:


  1. Document preparation

  2. Title examination

  3. House deeds

  4. Property transfer


Lenders do allow you to comparison shop for affordable services, but this is not an area where you should just pick the cheapest attorney to save money. Title issues on homes can arise after the fact, and when they do, they can be really stressful.



Establishing your escrow account


The title company is also likely to establish your escrow account, using deposits at closing for things like your down payment deposit (earnest deposit), property taxes and homeowner's insurance. Typically, to close, you'll need to come up with a certain number of months of property taxes as well as a one-year paid receipt for homeowner's insurance.


If your down payment ends up in escrow, it won't be given to the seller until closing, once both parties have officially transferred ownership of the home and completed their respective responsibilities.



Private mortgage insurance (PMI)


Depending on what type of mortgage you take, it is likely that you'll need to pay for private mortgage insurance if your down payment does not represent 20% of the home's sale price.


PMI usually isn't a huge financial deal, but will add to your monthly mortgage payments. It protects your bank on the event that you default, which they see as more likely in borrowers with lower levels of home equity.



2. Property fees


Among the property related fees that you will pay for at closing (or potentially before) in Minnesota are:


  • Home inspection

  • Home appraisal

  • Title search

  • Title insurance

  • Real estate transfer tax



Home inspection


Waiving a home inspection surged in popularity during the crazy real estate market from 2020-2022, but it is not something that we'd generally recommend. A good home inspection likely will run between $300-$600, and for that price, you'll receive an estimate of useful life remaining on the home's systems


Depending on the company you go with, you may also be able to add on radon and water inspections, which are a good idea.



Home appraisal fee


Before you close, your lender will send an independent appraiser out to the property to analyze the home and assure that you are not looking to borrow more money from the bank than the home is intrinsically worth.


The bank's goal is to understand what the home is truly worth in the event that you default on your mortgage payments.



Title search


One of the services your attorney/title company will do is perform a title search on the property. The goal is simple: the bank needs to make sure that the seller has the legal right and basis to sell the property.


Your attorney will look through deeds and government records to assure there are no other owners, unpaid taxes, or other issues that could prevent a sale.



Title insurance


Lenders in Minnesota and nationally will mandate that you purchase title insurance in the event that your title company missed something in their search. For example, there may be a legal question down the road that could result in you losing ownership[ of the home. Title insurance protects both you and the bank in the event that something happens or comes to light.



Minnesota's real estate transfer tax


Homebuyers in MN are also subject to a real estate transfer tax, in the form of a mortgage registry tax. Currently, MN's MRT (as it is known) is equal to 0.23% of the buyer's mortgage. So for example, a $300,000 mortgage will trigger a tax bill of $690.



3. Annual fees


The below fees are expenses that you will incur at the time of close, and then annually (or semiannually) on an ongoing basis:


  • HOA fees

  • Property taxes

  • Homeowner's insurance


We've already talked about homeowner's insurance, but you'll need to continue paying for it as long as you have the home as a way to protect you and your lender in case of natural disaster, accidents, etc.


Property taxes in Minnesota are due in May and October, though they may be paid monthly in your mortgage payments and held in escrow by your bank.


The last major consideration in terms of annual fees is if your property is part of a homeowner's association. HOA's can impact closing costs. and may require some sort of down payment to be paid.



7 tips to lower your MN closing costs

We hear from Americans wanting to know if there are strategies available to lower their closing costs. And while many fees that we've mentioned here are unavoidable in the homebuying process, there are some actions that you can take, including:


  1. Closing late in the month

  2. Shop mortgage lenders

  3. Negotiating lender fees

  4. Take a no-closing cost mortgage

  5. Negotiating with your seller

  6. Comparison shop homeowners' insurance

  7. Buy in a low tax county



1. Close as late in a month as possible

Potential Savings: Up to $1,000 or more


The month in which you take ownership of your home is the only time in which you'll ever prepay mortgage interest. When you close, you'll need to pay the mortgage interest for the remainder of the month.


So, to lower your closing costs in Minnesota, you may opt to schedule your closing for as late in the month as possible. This way, you'll only be on the hook for 1-2 days of mortgage interest.



2. Comparison shop mortgage lenders

Potential Savings: Up to $1,000 or more


I know it sounds basic, but you should always comparison shop mortgage lenders in order to find the lowest interest rate possible, but did you know that the mortgage lender you pick can also help you save on your closing costs?


That's right, thanks to the variety of fees assessed by lenders. The lender that you pick will play a role in determining the following fees:


  • Loan origination fees

  • Document preparation fees

  • Mortgage application/underwriting fees



3. Negotiate lender fees

Potential Savings: Up to $500 or so


Just because you pick a mortgage lender does not mean that you necessarily have to pay all of the fees that they try to charge you for.


Don't be afraid to build a relationship with your loan officer. And once you do, you may have an opening to ask him/her to waive some mortgage based closing costs. You aren't going to get your loan origination fee waived, but you may be able to get mortgage application and/or underwriting expenses waived, particularly if the real estate market is slow at the time that you buy your home.



4. Take a no-closing cost mortgage

Potential Savings: Not technically "savings"


Certain lenders in Minnesota and across the country offer the opportunity for homebuyers to finance some or all of their closing costs. And while you technically won't pay for them now, you will have higher mortgage payments for the life of your home loan.


Only you can decide if this tradeoff is worth it for you.


Mortgage lenders in MN that allow you to finance your closing costs include:


  • Rocket Mortgage

  • Bank of America

  • U.S. Bank



5. Ask the seller to cover some closing costs

Potential Savings: Varies


This strategy will only work in a buyers' market, but if you have leverage, you may consider asking the home seller to cover a portion of your closing costs.


In my experience, the key here is to be reasonable. You don't want to ask the seller to cover your loan origination fee, for instance. That won't happen. But you may have an opening to ask for $2,000 or so, depending on the purchase price of the home.

Above anything else, be prepared to negotiate!



6. Comparison shop homeowners' insurance

Potential Savings: $100-$500


Minnesota buyers looking to lower their closing costs would be wise to comparison shop when looking for a homeowners' insurance. You never know which insurance companies are looking to expand in which areas and may be offering lower premiums to quickly grow a book of business.


SuperMoney is my favorite site to help you comparison shop and pick the right insurer for you!



7. Buy in a low property tax county

Potential Savings: $500-$750


Remember - you'll likely need to pay a few months of property taxes when you close. In fact, these taxes could add up to be your largest closing cost expense. To help you limit your expenses here, you may opt to buy your home in a lower taxed area of Minnesota.


For reference, here are the highest and lowest property taxed counties in Minnesota.



Highest property tax counties in Minnesota


The counties in Minnesota with the highest property taxes are as follows:


  1. Carver County ($2,992)

  2. Hennepin County ($2,831)

  3. Scott County ($2.828)

  4. Washington County ($2,553)

  5. Chisago County ($2,511)



Lowest property tax counties in Minnesota


Meanwhile, the following Minnesota counties have the lowest property tax burdens across the state:


  1. Marshall County ($688)

  2. Kittson County ($691)

  3. Pipestone County ($761)

  4. Traverse County ($763)

  5. Faribault County ($773)



Closing cost guides in nearby states


Wisconsin

Ohio

Illinois



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About Nathan Zarcaro

Nathan Zarcaro is the founder of The Student Debt Destroyer and is passionate about personal finance related causes.  A 2018 graduate of Providence College's Liberal Arts Honors Program, Nathan studied Finance, and worked for one of the world's largest asset management firms before starting his own consulting practice.  In his free time, Nathan enjoys playing golf and traveling with his wife Brigid.

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