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Mortgage Closing Cost Terms Descriptions and Breakdowns, Who Pays What, and How they Can Be Paid

You will find many of these items on your Good Faith Estimate or other closing cost breakdown a lender may provide

NOTE: On January 1, 2010 - the Good Faith Estimate Changed. Loan origination and other fees are now listed differently than in the past. The current Good Faith Estimate now bundles a bunch of other fees into what is still called origination. Those familiar with the old form Good Faith Estimate constantly think mortgage companies are charging more for origination than they really are. Ask your loan officer for details.

Lender’s Loan Origination Fee - A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount, and is normally 1% of the loan amount. This is NOT "Discount Points" Any lender not showing an origination fee is always making up the same amount of money somewhere else. Usually by adding other charges (broker fee, processing fee, application fee, etc.) or having a higher interest rate. See "Beware of the Bad Good Faith Estimate" for details.

Lender’s Loan Discount Fee (POINTS) - Also known as "Points". A one time only fee charged by the lender to lower the interest rate normally charged. Each point is equal to 1% of the mortgage amount. Paying points to lower your interest rate may or may not be a good idea. It depends on your personal situation. Contact us for details.

Appraisal Fee - We need an appraisal in order to determine the security of the loan and the borrower’s Loan to Value (LTV). This fee can be rolled into the loan amount, paid in advance, or paid at the door to the appraiser who will research and assess the market value of the property on which a mortgage is being placed.

Credit Report - This fee is charged to pay a credit service agency to provide the lender with a full report detailing a borrower's credit history. We obtain an independent credit report, therefore we cannot reuse any prior credit report you may have. The credit listing is used as an indicator of the borrower willingness to repay the debt.

Tax Service Fee - The lender may require researching and/or examining the records of the Registry of Deeds for the county in which the property lies. Each property is reviewed to confirm that the taxes are paid in full and up to date. Any unpaid property taxes are a liability to the lender. This fee is usually NOT charged in Minnesota.

Broker Fee - This is a fee charged to the borrower by the lender for making a mortgage loan. Any lender not charging origination is almost always making up some of that money by adding fee's other lenders DON'T charge (Broker fee, processing fee, application fee, etc). Beware of any lender charging both an origination fee AND a broker fee. See "Beware of the Bad Good Faith Estimate" for details.

Application Fee - Some lenders collect appraisal & credit report costs up-front and call it an application fee. Be wary if a lender has an application fee AND a separate appraisal & credit report fee. I personally feel you should NEVER do business with a company that requires this fee. Even if you don't do the loan, they keep this money!

Processing Fee - Many think this is a junk fee. It typically is not. This fee pays for the physical processing of your loan (submitting to underwriting, paper, files, copying, etc.).

Underwriting Fee - The final lender, PMI company, and investor's fee for reviewing your loan application and goes to them, not us. The underwriting fee has grown significantly higher the past few years as lenders try to recover operating costs. This fee varies depending on many factors, including loan type. It is typical to see anywhere from $500 for a conforming loan, to $800 for an FHA or VA loan.

Wire Transfer Fee - When you purchase the property, your lender might wire funds to an account, known as an escrow account of the title company, to cover the loan amount and the closing costs. The receiving account charges a nominal fee for the wire transfer. We try to send checks to the title company to avoid this whenever possible.

Administration Fee - Investor’s administrative fees vary widely. At the time of our first estimate, you (or we) may not have chosen a specific loan product. Therefore, we may not know the actual fee you will be charged for investor administrative costs. The final fee may be lower or higher than estimated, or non-existent, depending on the loan product. This is sometimes called a Commitment Fee.

Another "administration fee" charged by lenders many encompass a bunch of smaller fees, lumped into one number. (courier fees, flood certifications, etc).

Days of Interest - Lender’s charge interest from the very first day they fund your loan. The lender will require you to pay, at the time of closing, the interest charge from the date the loan is funded until the start of the following month. For example; If you close on March 20th, you will pay 10 days of interest. If you close on March 5th, you will pay 25 days of interest.

Mortgage Insurance premium - Private Mortgage Insurance (PMI) may be required on certain loans (usually those with less than 20% down). It is paid by the borrower and insures the lender against certain losses in the event of a foreclosure, and is considered a 'pre-paid' cost.

Hazard (Homeowners) Insurance - The lender will require you to insure the property you are buying, since the property is the collateral for the loan. At the time of closing you must pay the entire first year’s premium, for hazards such as natural disasters up front. Thereafter, 1/12th of the yearly premium will be paid each month so the lender has enough in your escrow account to pay for the next years premium when due. This is considered a 'pre-paid' cost.

State/County Property Taxes - Each state and county differs regarding the taxes that are due and payable up front. It also may vary greatly depending on what month you close. These are considered a 'pre-paid' cost. Call for details. MANY lenders under-estimate this charge on their estimates.

Settlement or Closing Fee - The fee paid to the Title Company for handling all the financial transfers and payments associated with the transaction. This is only one of many fees charged by the title company.

Doc Prep - A fee charged to actually draw up the legal documents you will be signing at closing.

Title Insurance - Guarantees that your new home has no other lien claims on the property and guarantees your undisputed ownership. Charged by the title company, but your lender requires that you have lenders title insurance on the home. Owners title insurance is also available for a small extra charge, and is highly recommended.

Recording Fees - To create a public record of your legal ownership of the property, the lenders notify the county government to record the transaction. This fee, which varies by state, is paid to the county.

City/County/Tax/Stamps - Stamps, affixed to the deed, showing the amount of transfer tax paid. Most states stamp the deed rather then actually affixing a stamp. It is a transfer tax that is collected, in some localities, whenever property changes hands. Minnesota's state tax is .0023% of the loan amount on ALL loans. (.0024% in Hennepin and Ramsey County)

Flood Certification Fee - Paid for a flood certification that states whether or not you are in a flood zone as determined by FEMA. The lender is required to track the life of the loan to identify the flood zone status. If a property is later rezoned into a flood area, the lender will contact you and require flood insurance. This fee is required even if your home is on top of the highest hill.

Escrows (Impounds) - Reserves Deposited with Lender - A reserve account that may be required by the lender. Taxes, insurance, and PMI (if applicable) are part of the monthly payment. The reserves are accrued in an escrow account that is set up by the lender and paid on the borrowers behalf when due. The amount taken varies dramatically depending on what month you close. Please call for an accurate quote.
 

This breakdown accurate for MINNESOTA only
Other states may vary. For example, Wisconsin has no Mortgage Registration tax
Estimated Closing Cost Expense Worksheet 
1.  Loan Origination Fee 1% of the loan amount for most loans. It is always charged, but may be hidden in a higher interest rate.
2.  Discount "Points" A percentage of the loan amount (i.e. - 1 "Point" = 1% of the loan amount. Points are monies paid up-front to lower your interest rate.
3.  Credit Report Normally $10 - $20, but can go as high as $55.00 depends on what type of credit you have.
4.  Appraisal Fee Normally anticipate about $350 for conventional loans, $425 for FHA loans. Higher for 2-4 unit properties. Higher for JUMBO loans.
5.  Underwriting $400 - $800 depending on loan type.
6.  Processing Typically around the $400 range 
7.  Title Insurance Varies, depending on type of loan (purchase/refinance), loan amount, etc. Lenders policy is required. Owners policy is optional. Call our loan officers or title company for exact quote.
8.  Plat Drawing Inspection $60.00
9.  County Recording Fees $50.00 or more. 
10.  Flood Certification $20.00
11.  Name and Assessment Searches $24.00
12.  ARM Title Insurance Endorsement Fee $50.00
13.  Mortgage Registration Tax $2.30 per $1,000 of the loan amount.
$2.40 per $1,000 of the loan amount in Hennepin and Ramsey County.
14.  Closing Fee.
This fee is paid to the title company. 
Normally about $250.00. See above. There are a lot more fees paid to the title company than the closing fee. NOTE: see #'s 7,8, 9, 11, 12
15.  Misc. Fee's Varies, but figure about $350.00. This includes things like courier fees, etc.
16.  Prepaid Interim Interest.
Also known as "Days of Interest"
We recommend one full months interest be estimated. (Loan amount x interest rate = annual interest, divided by 12 months = monthly interest). Assumption: If closing occurs on the 20th of the month the buyer will be required to pay 10 days of interest at closing.
17.  Homeowners Insurance Premium
(1st year)
An estimate of the annual premium may be computed by multiplying the purchase price by about $4.00 per one thousand. This is purchased separately, prior to closing. Contact your Insurance agent for quotes. NOTE: See item #19 also.
18.  Private Mortgage Insurance Premium (PMI) The amount varies depending down payment & loan program. The smaller the down payment, the higher mortgage insurance costs. Generally, PMI is not required if the buyer is making a 20% down payment. Contact your loan officer for a quote.
19.  Homeowners Insurance At least two months are collected at closing to open the escrow account for a purchase loan (maybe higher for a refinance). This amount is in addition to the one year policy paid for in advance by the buyer prior to closing on a new home.
20.  Property Taxes In most situations, at least two months, and up to 7 months of the annual property taxes must be escrowed to open the escrow account. The amount collected depends on what month you close your loan. In addition, any pro-rated taxes must also be considered. Please contact us to obtain the exact figure. Click here to determine how much tax escrow will be collected at closing!
21. Flood Insurance This will be required if the property is located in a designated flood zone. The 1st year premium would be required along with at least two months estimated premium for the escrow account.

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St Paul, MN 55118

(651) 552-3681  

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Our services available only for properties located in Minnesota, Wisconsin, and South Dakota. Licensed as Mortgages Unlimited, Inc. NMLS # 225504. Joe Metzler NMLS # 274132. As a Lenders One partner, we are part of the 3rd Largest Retail Mortgage Originators in the country. We are consistently ranked as one of the top mortgage lenders in Minnesota by Minneapolis St Paul Business Journal. Any use or duplication of any materials is strictly prohibited.  All images, text, and materials 1998 - 2017 Joe Metzler. This is the private web site of Joe Metzler, NMLS #274132. All Rights Reserved.