How to Estimate Your Home Closing Costs

When you’re buying something larger than your yearly salary, what’s a couple extra thousand dollars on the payment? Well, it could be the difference between you having the required money down or not. That’s why estimating your closing costs will give you a much better understanding of what you can afford.

Here are a few things you should know about closing costs.

Calculating Closing Costs

In the sale, the sellers usually pay the larger figure of closing costs because they are charged with paying out the commission to the real estate agents. But buyers can try to negotiate with the seller for the seller to pay a portion of the closing costs on behalf of the buyer. We’ll assume for the point of this article that the seller is not paying anything for the buyer.

First, there are several variables that go into the closing cost calculation including the cost of your new home. A good estimate for buyer’s closing costs are around 3-6% of the purchase price. According to Bankrate.com, closing costs increased 6% from 2014-2015 but only 1.6% from 2015 to 2016, which is some consolation. Still, the average across the US on a 200,000 home is around $3,000.

But what goes into closing costs for the buyer?

Components of Closing Costs

The following are some of the costs you can expect to pay at closing:

• Title insurance: there are two types of coverage, one for the lender and one for the homeowner. The homeowner policy is optional but a wise investment.
• Loan origination and application fee
• Credit report fee
• Home and/or pest inspection (can be paid outside of closing)
• Appraisal fee to make sure the home is worth the purchase price
• Title search to ensure the title is unencumbered
• Survey fee
• Taxes and transfer fees
• Attorney fees
• Courier fees
• Closing fee or escrow fee
• Escrow for taxes and insurance
• Loan discount points
• Transfer taxes

Ways to Reduce Closing Fees

While there are some services that can be shopped around like title insurance and home inspections, there are also a few other tips to help you pay the least amount possible at closing.

• Close at the end of the month: you’ll be charged per diem interest so if you close at the beginning of the month, you’ll have a larger portion to pay than if you close with one day left.
• Check with your employer and memberships. Some employers like the military (U.S. government) and some unions offer discounts on closing costs or home prices, though they may require a specific lender be used.
• Ask the seller to cover them. You can negotiate with the seller to pay your closing costs. However, this is probably not advisable in a hot real estate market.

The State Matters

Closing costs do vary by state due to local and statewide regulations and fees. Here’s a list of the least expensive and most expensive states in which to close.

When you first obtain your loan, you will receive an estimated closing statement. Three business days before closing, you’ll receive a revised one. Compare the two numbers. They may be off slightly but should be very close. If not, notify the sender immediately.

At Bay National Title, we put our clients first. We take the time to make sure all of their questions are answered to their satisfaction.