Once you find the home of your dreams, the next step is to make it through the closing process. A part of this process involves paying a number of different fees, commonly known as closing costs. The Federal Reserve Board estimates, depending on the tax base in your area, these fees can run from 3 to about 6 percent of the purchase price of your home. Because this can be a substantial amount of money, knowing how to calculate closing costs can help you stay within your home-buying budget.
Things You'll Need
- Home purchase price
- Itemized closing cost list
Conduct research so you understand the fees that make up your closing costs, their purpose, which are flat fees and which are variable. Because the closing costs you pay depend on the type of loan you choose as well as the area in which you live, talk to your Realtor, real estate lawyer or lender to get a list of costs specific to you.
Make a computer spreadsheet or create a chart on paper that includes a column describing each fee and a column in which you can enter the amounts as you get them.
Get the amounts you will pay for all flat-fee closing costs. Typical flat-fee closing costs, along with estimates the Federal Reserve Board says you can expect, include an average of $365 for your mortgage application and credit report, $292 for your property appraisal, between $300 and $500 for your home inspection and about $154 for a land survey. You will also need to include costs for your title search and title insurance, which according to LoanPage.com average about $200 to $400.
Get the amounts you will pay for all variable closing costs. Because these amounts are usually a percentage of your total loan, you will need to negotiate a final purchase and determine the amount of your down payment before getting exact amounts. Typical variable closing costs, along with an average percent of your total loan according to the Federal Reserve Board, include a loan origination, or processing fee that decreases according to the size of your down payment. For example, this amount averages about $2,734 if you have a 5 percent down payment and about $2,537 with a 10 percent down payment. Loan points average between 0 to 3 percent of your loan amount, and prepaid interest amounts will depend on the total loan amount, the interest rate of the loan and the number of days from closing until your first payment is due. Homeowner’s insurance depends on the value of your home and on the coverage you decide to add, but averages about $744.
Get the amounts you will pay for fees specific to your loan. If your down payment is less than 20 percent of the purchase price of your home, add about $50 to $100 to closing costs and expect to pay this amount each month for mortgage insurance until you have a minimum of 20 percent equity in your home. If you finance your home with an FHA loan and have less than 22 percent equity at closing, you will pay about 1.75 percent of the loan amount each month until you reach this percentage. If you have a VA or RHS loan, add in a flat fee of between 1.25 and 3.3 percent for a VA loan, depending on the amount, and 2 percent for an RHS loan.
Calculate your closing costs by adding numbers from all three categories together.