How to Calculate Closing Costs

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By MSmith
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Calcuating closing costs

Traditionally, closing cost is a variety of costs associated with a real estate transaction above and beyond the price of the property itself incurred by the buyer or/and the seller. This is the time when the sales contract is fully executed and the title of the property is conveyed from the seller to the buyer. In the recent refinance boom, it is also referred to the cost involved in getting the refinance transaction completed. Always ask your broker for an estimated closing cost sheet called HUD-1 way before signing of loan documents to be prepared. These are the typical fees included.

Difficulty: Moderate

Instructions

Things You'll Need:

calculator
Pen
Paper
Calls to licensed professionals

Step 1

Attorney fees

Attorney Fees: in some states, buyers and sellers use attorneys to represent themselves for the preparation and recording of the official documents. Others use an escrow company.
Step 2

Title & escrow fees

Title Service Fees: title insurance and title search to produce a preliminary report. Other services conducted by the title company also include document preparation, wiring, notary, courier service and loan tie-in.

Escrow Fees: in some counties, title and escrow fall under two different entities. There will be a separate escrow fee charged to the buyer or/and seller.
Step 3

Government fees

Recording Fee: this is the fee charged by the local government for recording the Grant Deed, the change of ownership of the property.

Transfer Tax: tax required by local government, paid by either or both parties depending on where you live.
Step 4

Broker fees

Broker Fee: it is paid by a seller to the real estate broker for the sale of the property. The broker is responsible for marketing, finding a buyer, assisting the seller in negotiations. It is usually calculated as a percentage of the sale price. The amount is negotiable and can be from a fixed amount up to 6% or 7% of the sale price.

Points: fees charged by lenders, paid by buyers to secure a lower interest rate.

Origination Fee: a fee charged by a lender or a mortgage broker, paid by the buyer, for processing and completing a loan transaction. It’s generally described in points. I point equals to 1% of the loan amount.
Mortgage Application or Processing Fee: a fee paid by the buyer to the lender to cover the cost of processing loan application.
Step 5

Credit report

Credit Report Fee: in some cases, a fee charged by a mortgage broker or lender to run your credit report in order to qualify you for a loan.
Step 6

Impound Account: some lenders require buyers to have an impound account where buyers have to prepay 2 to 4 months of property tax and insurance.
Step 7

Appraisal report

Appraisal Fee: usually paid by the buyer, directly or through escrow, to a licensed professional appraiser to determine the property value. The lender usually wants to make sure the sale price is equal or less than the market value. In a refinance situation, the lender uses the appraised value to determine the LTV (Loan to Value Ratio).
Step 8

Home inspection

Inspection Fee: usually required by the lender to be paid by the buyer for a licensed property inspector and termite inspector to make sure the property is in good condition. A lot of times, seller may have to fix problems stated by the inspectors before close of escrow unless buyer is willing to sign an “as is” addendum to the purchase contract.
Step 9

Home Warranty

Home Warranty: A type of insurance paid by buyer or seller as determined in the purchase contract. It insures the major household systems against repair or replacement for the buyer's initial year of ownership.

Property Insurance: Lenders usually require buyers to prepay property insurance for one year before funding.
Step 10

Prorated fees

Prorated Property Tax: amount of government assessed property taxes paid by both buyer and seller depending on the date of closing.

Prorated Homeowner Association Fee: If a property involved in the transaction is managed by a HOA, the buyer and seller will pay their share of the fee depending on the date of closing.

Prorated Mortgage Interest: The monthly mortgage payment is calculated and payable on a specified day each month. An adjusted amount of interest will be calculated for the days before the first payment date of your mortgage.
Step 11

Overwhelming fees

When considering buying a house, it’s vitally important to calculate an estimated closing cost ahead before you start looking for a property to buy. Add the closing cost to your down payment amount to determine how much money you will need for the purchase. It’s a good practice to avoid wasting time on properties that are out of your price range.