How to Calculate Mortgage Closing Costs
This article is a guest post feature from The Wood Group of Fairway, a Texas mortgage lender with 18 locations across the state. They simplify the process with the perfect mix of technology and real human help.
No matter which loan program you choose, there will be closing costs – although some programs allow you to roll closing costs into your loan term. If you ask your lender for a closing sheet, they should be able to provide you with one ahead of time. Closing costs may be a factor as you compare lenders.
Closing costs are separate from your down payment. They don’t go toward the equity you have in the home. Let’s run down the different fees you may see on your closing sheet. Remember, these are ballpark estimates. They may vary from lender to lender. Your specific loan program may require different kinds of fees, too. The VA loan program is one example of a loan type that requires a unique fee.
Pre-paid closing costs go toward expenses you’ll have in the near future. If you weren’t to pay them as part of your closing costs, you’d have to pay for these items anyway. So you shouldn’t feel like these items are burning a hole in your pocket. You’re just getting a head start.
- You may pay interest in advance, which would cover the interest cost between your closing day and your first monthly payment. Typically, this will only be a month or two’s worth of interest due in your closing costs.
- A couple months’-worth of property tax may also be required at closing. How much you owe in property taxes hinge on your county’s property tax rate and the value of your home. For example, in Round Rock, Texas as of 2020, you could expect to pay around $336 per month on a $200,000 home.
- Lenders will usually require you to buy homeowners insurance, too. Yearly premiums are around 0.5% of the value of your home.
- You may have the option to pay private mortgage insurance upfront. If you plan to get some of that out of the way, make sure to include it in your closing cost estimate.
The other side of closing costs are composed of fees you’ll only pay once.
- The first is an application fee. Although you hardly ever need to pay an application fee before applying, you’ll probably have to cover it at closing. An application fee may run a few hundred dollars.
- Some states require an attorney’s fee, too. The attorney may need to be present when you close your purchase. You can shop around for an attorney on your own to find the best price. An attorney fee may cost around $1,000.
- The largest fee that everyone has to pay is the loan origination fee. It’s usually about 1% of your loan value. So if you’re borrowing $200,000, the origination fee will be $2,000. It goes to your lender for preparing your loan and helping you to the closing table.
One “point” equals 1% of your loan amount. You can choose to pay points to lower your interest rate. Make sure to ask your lender how much the rate will be lowered by when considering each point you pay. Your lender should also be able to help you determine if paying points will benefit you. That answer will partly hinge on how long you plan to stay in the home.