You’ve found your dream house, put in a winning offer, and secured approval for the home loan that you need to afford it. Now it’s time for the closing: the meeting where ownership of your new home is formally transferred to you. To successfully close the deal, you’ll need to be prepared to pay the appropriate costs, so a basic understanding of how to estimate closing costs will come in handy.
Breaking Down Closing Costs
Closing costs are an assortment of fees covering services involved in the sale of a property. They are due, as their name implies, at closing. As NerdWallet explains, closing costs may include fees for all of the following:
- Assessment of the Property: Appraisals and inspections are carried out to ensure that the property is a suitable match for your loan, and the fees for these services will be part of your tab at closing.
- Title to the Property: A title search is used to verify that the person selling the property has the right to do so, and your closing costs will include the title search fee. In addition, lenders often require an insurance policy that protects their investment in the event of a mistake during the title search process.
- The Home Loan: Securing a home loan can trigger numerous costs, including an application fee, a loan origination fee, and fees for points. You may also need to pay for the services of an attorney or a mortgage broker.
- Mortgage Insurance: With many loans, if your down payment is less than 20 percent of the purchase price, you will be required to get private mortgage insurance (PMI). If this is true for you, you’ll see the application fee and premium for this insurance included in your closing costs. If the Federal Housing Administration, the Department of Veterans Affairs, or the U.S. Department of Agriculture insures your loan, then you won’t need PMI, but there are specific fees required by the organizations backing these loans that will appear on your list of closing costs.
- Property Taxes, Insurance, and Fees. Closing costs typically include a sum equal to two months of city and county property taxes at closing. The premium for homeowners’ insurance will also be part of the price tag. In addition, if your new home is subject to a condo or homeowners’ association that requires annual dues, you will also be charged for that at closing.
How to Estimate Closing Costs
Closing costs can vary widely, but there are a few different ways to estimate what you’ll need to bring to the table at closing:
Do the Math
Zillow reports that buyers can generally expect to pay somewhere between two and five percent of their home’s purchase price in closing costs. Therefore, you can use some basic math to predict what your closing costs will run. Take your home’s purchase price and multiply it by 0.02. Then, multiply the purchase price by 0.05, and you’ll have an approximate range. For example, if you’re purchasing a home for $200,000, then a little math reveals that you should probably plan for closing costs between $4,000 and $10,000.
Use an Online Calculator
While a little multiplication can do the trick, don’t panic if math isn’t your favorite subject. When learning how to estimate closing costs, you don’t have to plug numbers into an equation yourself. There are online calculators that will do the work for you. MortgageCalculator.org offers a basic closing costs estimator for when you want to keep things simple and an advanced estimated closing costs calculator that allows you to plug in more details to produce a more informed estimate.
Ask Your Lender
When it comes to the mortgage process, your lender is an excellent source of information. Your lender will provide you with two documents that will give you an excellent idea of what your closing costs will likely be. For starters, the Loan Estimate that you’ll receive within days of submitting your loan application will include a great deal of valuable information, including estimates for your interest rate, monthly payment, and closing costs. It’s crucial to remember that these figures are only estimates, and they may change. However, at least three days before closing, your lender will provide you with a Closing Disclosure that contains the final details about your loan. In this five-page form, you’ll find information like your loan’s terms, your projected monthly payments, and your closing costs.
Are you planning to purchase a new home? If you live in the Kansas City area, contact PrimeLending today. Our committed team will help you navigate the home-hunting process so that you can purchase the home of your dreams. At our branches located throughout Kansas City, we can help you explore our wide variety of loan products and programs. Plus, PrimeLending utilizes delegated underwriting, local appraisers, and cutting-edge technology to accelerate the underwriting and closing processes. We’re more than happy to navigate you through the process of buying your first home, and we can help you learn how to estimate closing costs. When you’re ready to get started, please give us a call at 844-701-5626.