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Calculating closing costs

By Trulia | Published: Oct 14, 2009 | 19 Comments

One of the most confusing things about the process of closing on a home is the variety of closing costs. The costs can include points, financing costs, title insurance and taxes.

These costs can vary across the U.S., can vary by lender, and can also be higher if a buyer's credit rating is low. But, as a rule of thumb, estimate that your costs will be anywhere between 3% and 6% of the price of your home, according to the Federal Reserve Board. As a buyer, it pays to shop around for lenders who offer the lowest closing costs. The FRB offers a very detailed list of common closing costs and their estimated prices.

How can you calculate what your closing costs will be? Follow these steps:

  1. Review your lenders' good faith estimates

    Federal law mandates that lenders provide mortgage shoppers with what's called a "good faith estimate" of settlement fees, or closing costs, that a lender will charge you upon the closing of your home. Good faith estimates -- which include estimations of the mortgage-related closing costs your lender will charge you -- are available to you early in the process, when you are shopping for a mortgage.

    Get good faith estimates from two to three lenders and compare their costs. There will be a laundry list of fees noted on these good faith estimates, among them: the loan origination fee, loan application fee, "buydown" points, appraisal fee, survey, title search and title insurance...the list goes on.

    Ask about any fees that seem unnecessary -- these may be "junk" fees that can be easily eliminated if you ask your lender.

    Using these good faith estimates, try to negotiate lower fees with your preferred lender and ask lenders to meet or best other lenders' offers. Do this comparison shopping before signing for a loan.

  2. Research

    There are several places you can go online to estimate what your closing costs may be. On Trulia, try the SmartClosing Calculator for a calculation of what your closing costs may be by entering in variables like the home's address and your loan details.

    FreddieMac.com also offers a closing costs calculator, as well as a closing costs worksheet.

  3. Compare

    At the closing of your home purchase, you will be required to sign a Final Settlement Statement, also known as a HUD-1.

    This statement will list the closing costs and fees that will be charged to you, the buyer. By law, you can ask to receive a copy of this statement and view it at least one day before closing.

    Be sure to review the list ahead of time, checking that everything is correct. This statement will give you a true picture of your closing costs (and is a better statement of your closing costs than the estimations that were provided in the good faith estimate from your lender.)

    Compare the costs on your good faith estimate to those on your final settlement statement -- the fees listed on the settlement statement should compare very closely to those on your good faith estimate.

    For more on the settlement statement and federal requirements put into place to protect consumers, read "RESPA - Real Estate Settlement Procedures Act" at hud.gov, the website for the U.S. Department of Housing and Urban Development.

Comments

By JoAnn Cassello,  Fri Nov 13 2009, 16:33
Very helpful info for homebuyers! :)
By Jim Paulson, Owner/Broker,  Wed Jan 6 2010, 23:33
If I am dealing with a lender that I have not had proven success with in the past, I require them to sign a document that states if their Good Faith Estimate is incorrect, they (as the lender) will pay any additional costs! It is amazing how many times they start to "remember" the additional fees! (appraisal reviews, underwriting reviews, estimating maximum possible interest prepayments instead of minimums, HOA set up fees, etc.)

It is difficult to compare apples to apples when some lenders don't admit which orchard they are going to pluck the loan from! To those that do it right, they appreciate my requests and I thank for doing it right to start with!
By Connie Wildasinn,  Sun Jan 31 2010, 22:36
This blog point is real old ... in lender standings... get to a lender and have them run you the numbers.. the loan industry is changing by the day... don't assume... it will cost money to buy money...
By Christopher Pohlman,  Mon Jun 28 2010, 12:54
Great! Very clear and concise. It helps First Time Buyer's to visually see what is being explained to them and to know how to interpret the information.
By Fran Rokicki,  Tue Dec 14 2010, 16:00
Jan, I really like the idea of that document, signed by the lender. I had a banker cause havoc, who did this to my Daughter. I can't imagine what he was thinking! Thank you for sharing that idea!
By Fran Rokicki,  Sat Feb 26 2011, 12:44
Just a thought. Some states, some towns with those states, charge different taxes and local fees. Be sure to check on all town and/or state charges on whatever property you choose to purchase.
By Anniesnwhll,  Fri May 13 2011, 10:41
thank so much, we are looking for a home in the catonsville area anniesnwhll@aol.com
By Christopher Love,  Mon Dec 5 2011, 14:33
The most important thing to have is an agent who has an affiliation with a credible, reputable mortgage broker, who will estimate the the closing costs on the conservative side of things. It is best for your broker to advise you to come with a high figure than a low one.
By Shawn Rosa,  Tue Dec 13 2011, 11:37
easy to figure out for yourself, but let the mortgage rep provide the actual estimate to the buyer
By Jeff Luzadas,  Thu Dec 15 2011, 09:41
@Christopher Love + @Shawn Rosa: I'd have to agree with you both. From my experience of getting this questions asked by all my buyer clients, I always default to saying 2.0% of the purchase price, at least for San Diego county real estate of course. It is usually a high number, but it never shocks buyers about the two biggest pieces of closing costs:
1) Transfer Fees (title charges, escrow charges, etc)
2) Lender impounds (mostly pre-paid taxes, Hazard insurance, Mortgage Insurance)

Then to get a better estimate of price, I always refer to the mortgage lender to reference a "Good Faith Estimate" or a "HUD-1". Either of those 2 official documents help to keep transparency in escrow, especially since it's dealing with money.

(Jeffrey Luzadas, San Diego Real Estate Agent website: http://www.Agent619.com)
By Adrian Provost,  Mon Feb 27 2012, 17:24
Wonderful article for home buyers*
By Donald Stevens 909-428-0503,  Fri May 25 2012, 12:00
Homeowners insurance is usually overlooked and put together last minute. It is a closing cost and without careful consideration could cost you an additional $500-$1000 if you dont shop around. Get a free quote and get educated. Insurance in some parts of the country can be really expensive. We write homeowners for loans and real estate purchases that are closing in a short amount of time.

http://www.myinsurancenerd.com
By Matie,  Fri Jun 15 2012, 03:06
Best free foreclosure search with http://www.indexpost.com/
By Carmen Brodeur- Top 1% Realtor,  Wed Oct 17 2012, 11:22
Closing costs can vary significantly from buyer to buyer just depending on what is agreed upon in the contract and how they are paying. In Arizona it is standard for closing costs on a cash sale to be about 1% of the purchase price and for a financed transaction it is typically about 2.5% of the purchase price. This is what we generally see.
By Mark McGuire,  Tue Dec 11 2012, 16:49
One of the biggest mistakes that I have seen is that buyer agents don't ask their buyer's lenders for an estimate of the costs to secure the loan. Many people make the mistake of thinking a loan is better simply based on the interest rate, but if you're paying a higher loan closing cost to get the lower rate, you might actually be getting a deal that's worse! Many agents don't understand the process, let alone the buyers themselves!
By Victor,  Sun Feb 24 2013, 12:34
By Victor M Ceballos Sun 24,2013

This is for the Latino Clientela version;
Es un verdadero error,de los agentes que no hacen preguntas a sus Clientes y los prestamistas para tomar estimaciones de costos y prestamos
para que los puedan asegurar .
Porque si usted esta pagando un alto pago de cierre de papeleo podria agarrar un bajo interes (rate)Y podria agarrar un prestamo en riezgo,y muchos Agentes no saben o no entienden los terminos,y dejan solos a los a la - -
Clientela y hay que dar mas seguimiento,porfavor para mas informacion mi correo electronico es; http://www.ezfinance.mob_homes@yahoo.com Y mi Web http://www.cvmobilehomes4less.com
By Paul Mccormick,  Tue Aug 6 2013, 10:41
And the best tool available FREE for 1st time homebuyers is IB Calculator from InBedrock.com. It will help you better understand ALL real costs of homeownership: 1) Purchase closing costs, 2) Financing costs, 3) Operating costs like real estate taxes + homeowners insurance + utilities/maintenance costs, and finally Sale closing costs. Perform Buy v Rent and Breakeven Analysis, and understand how + why you build equity over time in your home. Get Started Today! No advanced math or EXCEL skills needed. Even has a downloadable spreadsheet that itemizes most all closing costs incurred with buying a home.
By Costa Blanca,  Fri May 23 2014, 12:07
calculating closing costs is never easy :(
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House is a sound purchase and its market cost is not the only expense which you will have to carry. Each detail should be taken into consideration and http://installmentcredits.com/ will help you to carry it in challenging situations.

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