What Fees Should I Expect From My Lender in Minnesota?
A buyer I was working with in Coon Rapids called me two days after receiving her loan estimate with a level of frustration in her voice that I recognized immediately. She had expected her closing costs to be a certain amount based on a rough percentage she had read about online. What she was looking at on the loan estimate was significantly more detailed and somewhat more expensive than she had prepared for. There were line items she did not recognize, charges she did not know were coming, and a total that felt larger than the number she had been mentally working with. “I feel like I am being charged for things I did not agree to,” she told me. “There are fees on here with names I have never heard of. Is this normal? Are these legitimate? And should some of these be lower?” Her reaction was not a sign that anything was wrong with her loan estimate. It was a sign that the standard preparation most buyers receive before seeing a loan estimate does not adequately explain what to expect. The loan estimate form is actually one of the most buyer-protective documents in the mortgage process, standardized specifically to make cost comparison across lenders possible. But it is not intuitive on first reading, particularly for buyers who have not been walked through what each section means. Here is the complete breakdown of every category of lender fee a Minnesota buyer should expect to see, what each one is, and what is negotiable. The Structure of the Loan Estimate The loan estimate is a standardized three-page form that lenders are required to provide within three business days of a loan application. It was developed by the Consumer Financial Protection Bureau as part of the TRID, which stands for TILA-RESPA Integrated Disclosure, rule that took effect in 2015. The form presents closing costs in a specific structure that groups charges by their nature and by who charges them. Understanding the structure of the form is the first step to understanding what you are looking at. Section A on the loan estimate covers origination charges, which are fees charged by your lender for making the loan. Section B covers services you cannot shop for, meaning third-party services that the lender selects and that you are required to use. Section C covers services you can shop for, meaning third-party services where you have the option of choosing the provider rather than accepting the lender’s selection. Sections E through H cover prepaid items, initial escrow payments, and other costs that are not lender fees but that are part of the total closing costs. Section A: Origination Charges Origination charges are the fees your lender charges for processing and making the loan. These are the charges that are most directly negotiable and that vary most significantly from lender to lender. The origination fee, sometimes called an origination charge or a lender origination fee, is the primary fee the lender charges for the administrative work of processing, underwriting, and closing your loan. It may be expressed as a flat dollar amount or as a percentage of the loan amount. A common origination fee is between zero and one percent of the loan amount, though this varies widely by lender. The underwriting fee is a specific charge for the cost of evaluating your creditworthiness and approving the loan. Some lenders include this within the origination fee. Others break it out as a separate line item. Underwriting fees typically range from five hundred to one thousand dollars or more. The processing fee, where it appears separately, covers the administrative cost of gathering and reviewing your loan documentation. Some lenders charge this as a separate line item. Others include it in the origination fee. Discount points, if you have chosen to buy down the rate, appear in Section A as a separate line item showing the cost in dollars of the points you are purchasing. The rate reduction you receive in exchange is shown on the loan terms section at the top of the form. It is important to understand that the fees in Section A represent the lender’s own charges and are the most directly comparable across lenders on the same loan product. When comparing loan estimates from multiple lenders, Section A is where you are most likely to find meaningful differences that affect your total cost. Section B: Services You Cannot Shop For These are third-party services that your lender requires and that they select the provider for. Because you cannot choose the provider yourself, you accept the cost your lender has determined. The appraisal fee is the cost of the property appraisal required by your lender to verify the value of the home you are purchasing. In the Twin Cities metro, residential appraisal fees typically range from four hundred fifty to seven hundred fifty dollars depending on the property type and complexity. This fee is often paid before closing, sometimes at the time the appraisal is ordered. The credit report fee is the cost of pulling your credit report from the major credit bureaus. This is typically a small charge, often twenty-five to fifty dollars, and is sometimes waived by lenders. The flood determination fee is the cost of determining whether the property is in a flood zone that requires flood insurance. This is typically a small administrative fee of fifteen to thirty dollars. Tax monitoring fees and tax status research fees are charges for services that verify the current tax payment status of the property and set up monitoring of the tax payments during the life of the loan. These are typically modest charges of fifty to one hundred dollars. The title service fee in Section B specifically covers the portion of title services that the lender selects rather than allows you to shop for. Section C: Services You Can Shop For These are third-party services you need but where you have the option to choose your own provider rather than using the