Difference between revisions of "Calculate Closing Costs"
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The closing costs on a real estate purchase are the variety of fees that you will have to pay to finalize your sale. These fees can vary significantly depending on a variety of factors and can add up considerably, regardless of which side of the table you will be on. Being able to accurately estimate your closing costs before you even make an offer on a home or put your home on the market is crucial to being prepared for what the process is going to cost you up front. | The closing costs on a real estate purchase are the variety of fees that you will have to pay to finalize your sale. These fees can vary significantly depending on a variety of factors and can add up considerably, regardless of which side of the table you will be on. Being able to accurately estimate your closing costs before you even make an offer on a home or put your home on the market is crucial to being prepared for what the process is going to cost you up front. | ||
| − | [[Category:Mortgages and Loans]] | + | [[Category: Mortgages and Loans]] |
== Steps == | == Steps == | ||
=== Calculating Typical Buyer Closing Costs === | === Calculating Typical Buyer Closing Costs === | ||
| − | #Calculate your down payment. This will be determined by how much money you have to put down and what kind of loan you get. Some loans require a 20% down payment, while others will allow you to put down much less.<ref>http://bucks.blogs.nytimes.com/2013/05/29/a-calculator-to-compare-closing-cost-options/?_r=0</ref> Shop around for a loan that will work well with the amount of money you have to put down. | + | #Calculate your down payment. This will be determined by how much money you have to put down and what kind of loan you get. Some loans require a 20% down payment, while others will allow you to put down much less.<ref name="rf1">http://bucks.blogs.nytimes.com/2013/05/29/a-calculator-to-compare-closing-cost-options/?_r=0</ref> Shop around for a loan that will work well with the amount of money you have to put down. |
| − | #*If you pay less than 20% down you will need to pay monthly for mortgage insurance, the first installment of which will be added to closing costs. The cost of mortgage insurance can vary widely but will generally cost you over $100 per month. When you get your loan make sure that once you have paid 20% of the cost of the house, meaning you have 20% equity in the home, that your mortgage insurance will end.<ref>http://michaelbluejay.com/house/pmi.html</ref> | + | #*If you pay less than 20% down you will need to pay monthly for mortgage insurance, the first installment of which will be added to closing costs. The cost of mortgage insurance can vary widely but will generally cost you over $100 per month. When you get your loan make sure that once you have paid 20% of the cost of the house, meaning you have 20% equity in the home, that your mortgage insurance will end.<ref name="rf2">http://michaelbluejay.com/house/pmi.html</ref> |
#Determine what your lender will charge for an origination fee. This pays for the time and effort involved in gathering and consolidating the paperwork and supporting documentation, as well as for creating a client file. | #Determine what your lender will charge for an origination fee. This pays for the time and effort involved in gathering and consolidating the paperwork and supporting documentation, as well as for creating a client file. | ||
| − | #*Some lenders may also charge for providing a specific interest rate. This charge is a set percentage of the loan amount and therefore is referred to as the number of "points" the lender will charge. A charge of 1 point would be equal to 1 percent of the loan amount.<ref>http://michaelbluejay.com/house/closingcosts.html</ref> | + | #*Some lenders may also charge for providing a specific interest rate. This charge is a set percentage of the loan amount and therefore is referred to as the number of "points" the lender will charge. A charge of 1 point would be equal to 1 percent of the loan amount.<ref name="rf3">http://michaelbluejay.com/house/closingcosts.html</ref> |
| − | #Ask about the fees associated with the title company. The title company makes sure that there are no other claims on the property and title insurance protects the lender against any future legal problems.<ref>http://www.zillow.com/mortgage-rates/buying-a-home/closing-costs/</ref> It helps to ensure that the title to your property is free and clear at the time of the sale. The cost for these services vary by location and company. On a $100,000 loan, the title company could charge anywhere between $175 to $900 dollars, if not more.<ref>http://www.zillow.com/mortgage-rates/buying-a-home/title-company/</ref> | + | #Ask about the fees associated with the title company. The title company makes sure that there are no other claims on the property and title insurance protects the lender against any future legal problems.<ref name="rf4">http://www.zillow.com/mortgage-rates/buying-a-home/closing-costs/</ref> It helps to ensure that the title to your property is free and clear at the time of the sale. The cost for these services vary by location and company. On a $100,000 loan, the title company could charge anywhere between $175 to $900 dollars, if not more.<ref name="rf5">http://www.zillow.com/mortgage-rates/buying-a-home/title-company/</ref> |
#*The title company used is usually determined by the lender. If you have a strong preference, however, ask your lender if they would be willing to work with the title company you want to use. | #*The title company used is usually determined by the lender. If you have a strong preference, however, ask your lender if they would be willing to work with the title company you want to use. | ||
| − | #Determine how much the appraisal of the home will cost. It will most likely be between $300 and $400 dollars.<ref>http://www.realtor.com/advice/what-you-should-know-about-the-appraisal-process/</ref> An appraisal of the property is required by the mortgage lender in order to ensure that the loan amount is in line with the property's value. The lender will hire the appraiser and let you know how much the appraisal will cost. | + | #Determine how much the appraisal of the home will cost. It will most likely be between $300 and $400 dollars.<ref name="rf6">http://www.realtor.com/advice/what-you-should-know-about-the-appraisal-process/</ref> An appraisal of the property is required by the mortgage lender in order to ensure that the loan amount is in line with the property's value. The lender will hire the appraiser and let you know how much the appraisal will cost. |
#*This appraisal is likely different from the tax assessor's appraisal | #*This appraisal is likely different from the tax assessor's appraisal | ||
#Find out if your lender will charge you for the credit report they run on you. Some lenders may charge you for fees incurred in pulling your credit report from the three major reporting bureaus. | #Find out if your lender will charge you for the credit report they run on you. Some lenders may charge you for fees incurred in pulling your credit report from the three major reporting bureaus. | ||
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#*Your initial escrow deposit should include enough to pay for any taxes that will come due in the current year (the seller will pay you for unpaid taxes for the part of the year you did not own the house, if any, so this will be reimbursed to you), two months of property taxes, and two months of homeowner's insurance. | #*Your initial escrow deposit should include enough to pay for any taxes that will come due in the current year (the seller will pay you for unpaid taxes for the part of the year you did not own the house, if any, so this will be reimbursed to you), two months of property taxes, and two months of homeowner's insurance. | ||
#* Taxes are paid in arrears, meaning that you pay after the charges are incurred, but homeowner's insurance is paid in advance. | #* Taxes are paid in arrears, meaning that you pay after the charges are incurred, but homeowner's insurance is paid in advance. | ||
| − | #Compare your calculation to the list the buyer closing costs that are required and selected by the lender. The lender must provide you with an accurate list and estimate of these charges, called a "Good Faith Estimate."<ref | + | #Compare your calculation to the list the buyer closing costs that are required and selected by the lender. The lender must provide you with an accurate list and estimate of these charges, called a "Good Faith Estimate."<ref name="rf3" /> |
#*If you don't understand any of the charges outlined in the Good Faith Estimate you should feel free to ask your mortgage lender about them. | #*If you don't understand any of the charges outlined in the Good Faith Estimate you should feel free to ask your mortgage lender about them. | ||
#*Some of the fees that go directly to the lender, such as the origination fee, may be negotiable. It doesn't hurt to try to lower it, the worst that can happen is that the lender will say no. | #*Some of the fees that go directly to the lender, such as the origination fee, may be negotiable. It doesn't hurt to try to lower it, the worst that can happen is that the lender will say no. | ||
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== Tips == | == Tips == | ||
* You may be able to negotiate the responsibility for some of the closing costs. Buyers should always ask the seller to contribute to their closing costs. Typically, unless the seller is carrying a mortgage over the value and sales price of the house, the seller will have more flexibility in out-of-pocket expenses. | * You may be able to negotiate the responsibility for some of the closing costs. Buyers should always ask the seller to contribute to their closing costs. Typically, unless the seller is carrying a mortgage over the value and sales price of the house, the seller will have more flexibility in out-of-pocket expenses. | ||
| − | *FHA loans, loans backed by the federal government, will require less up front cost from you.<ref>http://www.hsh.com/closing-cost-calculator.html</ref> However, the requirements for getting one of these loans are specific and the fees for this type of loan, which are rolled into the loan amount, are usually higher.<ref>http://www.fha.com/fha_loan_requirements</ref> <ref | + | *FHA loans, loans backed by the federal government, will require less up front cost from you.<ref name="rf7">http://www.hsh.com/closing-cost-calculator.html</ref> However, the requirements for getting one of these loans are specific and the fees for this type of loan, which are rolled into the loan amount, are usually higher.<ref name="rf8">http://www.fha.com/fha_loan_requirements</ref> <ref name="rf7" /> |
*While some of the items required for closing can be comparison-shopped for, others are chosen by the buyer's lender or broker. | *While some of the items required for closing can be comparison-shopped for, others are chosen by the buyer's lender or broker. | ||
