I just heard it again, a Real Estate Agent saying average closing costs to obtain a home mortgage loan in Minnesota are about 3%.
This simply is way too broad a statement about actual closing costs.
As an actual Minnesota mortgage lender for the past 26-Years, the perception that mortgage loan closing cost are about 3% in MN has never been really accurate. This gets spread around primarily because a conventional loan only allows for seller paid closing costs of 3% ( FHA Loan is 6%: VA Loan is 4%, convention is 6% with a large down payment ).
About 1/2 of closing costs are a set cost regardless of purchase price. The other 1/2 of closing costs are based on the purchase price. Take an appraisal for example, a $500 dollars appraisal cost is about 1% of a $50,000 Loan, but only .1% of a $500,000 Loan. Another example is the title company closing fee, which is now around $400. Again, regardless of purchase price., but can make a big difference in the overall cost percentage.
So lower priced homes tend to have costs of 4% to 5% of the price, while upper end homes tend to come in closer to 2% of the price. Therefore getting 3% seller paid costs falls short of the real costs for many buyers. These examples assume full closing costs and pre-paid items (taxes and insurance).
To make up the difference, lender can, and commonly offer you other options, like a no loan origination cost lan, or even total no closing costs loans. We also can do something called ‘lender credits’ to reduce out of pocket closing costs. While these options sound great, they are all achieved by increasing the interest rate. Therefore you pay costs over time, versus up-front today.
That is the same when asking for seller paid closing costs. You are paying over time, versus out of pocket today.
Finally, there is absolutely nothing wrong with any of these options. They just need to be understood and analyzed to see what is best for you. A good Loan Officer will explain and go over all these items once we see a full application, and understand your financial position, amount of cash you have to pay for down payment and more.
Property understanding all these items, then working together with a great agent to property structure your offer will make sure you get a great overall deal on your dream house.
Be sure to ask your Loan Officer plenty of questions, and be sure you carefully pick the Loan Officer who will be handling your largest financial transaction of the average persons life.
If you are buying a home in Minnesota, Wisconsin, or South Dakota… I can be your Loan Officer. Contact me at (651) 552-3681 or JoeMetzler.com.