Home Loan Closing Costs

July 13, 2010

The closing costs for a home loan are something that won’t show up in in the results of a mortgage calculator.  When you enter the loan amount, the term, and interest rate a loan calculator gives you back your projected monthly home mortgage payment and sometimes an amortization schedule.

Don’t Forget Closing Costs

Although the mortgage is your ongoing cost, there are one-time costs you’ll also have to pay at the time you close the loan with your bank or credit union.  These are known as closing costs and ususally run about 1.5% – 2% of the value of the home you’re buying. Unfortunately you’ll probably have to pay closing costs even if you’re just doing a mortgage refinance to get a better interest rate. 

So how much cash do you need to plan on spending on closing costs?  Some lenders will let you roll your closing costs into your mortgage so you don’t need to have the cash at closing time.  Of course, this raises the total amount you’re borrowing and increases the amount of interest you’ll pay over the life of the loan so ideally you’ll pay your closing costs up front.

Closing Cost Calculators

You won’t find many stand alone closing cost calculators, most of them are built into lender’s interest rate calculators.  To find this, look for a button or link that says “Check Mortgage Rates” or “Get Interest Rates” on your bank’s website.

After you enter the loan purpose (purchase or refinance), the loan amount, home value, location, property use (primary residence, investment property, vacation home) and property type (existing single family, new single family, condo, multiple unit property) you’ll be given a rate quote.

Many times the quote will include the rate, the APR, and a link to the total cost of the loan.  Follow the “Total Cost” link to find out what your closing costs would be if you borrowed from that lender.

Compare Closing Costs

When you apply for a loan, the RESPA Act (Real Estate Settlement Procedures) requires that the lender give you a “Good Faith Estimate” that contains an itemized list of fees and costs associated with your loan.  The internet has made it easy to compare closing costs from different lenders, you don’t even have to apply for the loan, you can get an idea of what their charges are from their website. Keep in mind these are not official quotes and could change later on but at least give you a starting point.

Below is a table I put together recently to compare mortgage closing costs from two local lenders.  As you can see the loan origination fee and title insurance services are usually some of the biggest charges.  If you decide to pay loan points you can get a lower interest rate but I didn’t ask to have those included in my interest rate estimate.

I put the closing costs of the two lenders side by side and it was easy to see who’s the best option when it comes to cost. 

Lender ALender BA vs B
Origination charge$425.00$488.00$63.00
Your charge for this interest rate$0.00$0.00$0.00
Appraisal Fee$400.00$400.00$0.00
Credit Report$25.00$22.00($3.00)
Hazard/Flood Determination$25.00$12.00($13.00)
Tax Service Fee$65.00$0.00($65.00)
Title services and lender's title insurance$325.00$275.00($50.00)
Termite Inspection$0.00$50.00$50.00
Owner's title insurance$693.75$0.00($693.75)
Government recording charges$133.00$78.00($55.00)
Fee Total($766.75)
Initial escrow deposit$1,262.48 $1,375.00
Daily interest charges$387.74$387.74
Homeowners insurance$787.44$1,125.00

Thanks to recent legislation there’s a new standard for the Good Faith Estimate that makes it even easier to compare the itemized costs. So be sure you consider closing costs when taking out a home loan and shop around not just for the best interest rates but also the lowest closing costs.

Ben

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Ben

Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn’t like the other kids… His addiction to personal finance has paid off for his family and now he’s helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.


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