Explanation of Closing Costs
The following fees can vary, depending on the provider and the market. It is recommended that you shop around and compare fees prior to choosing a provider.
Application Fee:
There may be a separate “application fee.” This is broker-driven fee. Some lenders won’t refund this fee if your application is turned down. Before filing an application, ask the lender under what circumstances, and to what extent, this fee is refundable. Get the lender’s answer in writing. This fee should always be negotiable.
Underwriting Fee:
Most lenders charge you to process your application. This is often known as an “underwriting fee.”
Processing/Commitment/Administration Fee:
These are actually three different fees that may be grouped together or listed separately, however, the combined total of these three fees should not exceed .5 percent of the loan value. These are negotiable broker- and lender-driven fees.
Origination Fee:
Origination fee is the term lenders use for the fee they charge you for extending a loan, above and beyond the interest they charge. Be sure to consider the origination fee along with points and all other fees in deciding which lender offers the best deal. Some lenders may charge more if they consider you a credit risk. This fee is negotiable.
Points or Discount Points:
Points may or may not be added, depending on the loan interest rate you apply for. If you are willing to pay more points (also called “up-front interest”), you should be able to get a lower interest rate on your loan. Paying points can be a good investment if you plan to live in your home for a fairly long time—about 10 years if you have a 30-year mortgage, or seven if you have a 15-year mortgage. Points are tax deductible in the first year of most loans.
Attorney’s Fees:
In unusual cases, you may be required to pay for the services of the lender’s attorney in connection with the closing. This would not cover your attorney’s fees.
Appraisal Fee:
This is a fee for the appraisal of your property’s value. An appraisal is required for most loans.
Plat Drawing/Survey:
The lender or the title insurance company may require a plat drawing showing the location of the home and the lot line, as well as any easements and rights of way. But plat drawings often are inaccurate depictions that won’t show you the exact property you own. For a precise drawing of your property lines, have the land surveyed.
The survey will keep you from accidentally putting up a fence on your neighbor’s property, chopping down a tree that doesn’t belong to you or other actions that can result in lawsuits between neighbors.
Private Mortgage Insurance (“PMI”):
This is the insurance required on some conventional loans. Typically, the larger the down payment, the lower the PMI costs.
Mortgage Insurance Premium (“MIP”):
This is also called FHA Mortgage Insurance because it is the insurance required for an FHA loan. For additional information on MIP, including how the monthly premium is calculated, go to the HUD website at www.hud.gov. You never need both private mortgage insurance and FHA mortgage insurance.
Mortgage Registration Tax:
This is a tax from your state and county that most Minnesota mortgage borrowers must pay.
Settlement or Closing Fee:
This fee is paid to the “settlement agent,” “closing agent,” or “closer” for conducting the closing.
Credit Report:
The lender will order credit reports on you (and your spouse or other co-signer) to evaluate your credit history.
Recording Fees:
These fees are passed on to the county by the lender or closing company to record the documents. But sometimes closers tack on their own charge for having the documents filed. Your county recorder can verify the actual cost of the county’s recording fees. Any fee charged to you beyond the amount quoted by the county recorder should be negotiable.
Tax Service Fees:
Some lenders charge to verify that you pay your taxes with the county. The county does not charge for the service, so consider this fee negotiable.
Source: Minnesota Attorney General's Office, www.ag.state.mn.us