Adding up Buyer's Closing Costs: A How to Guide

Buyers closing costs are more than just the down payment on a home. For most buyers closing costs include things such as prepaid escrow amounts, loan origination fees, assessment fees, title insurance, and other miscellaneous fees. If you want to know how much of a chunk this house will take out of your financial hide immediately, then you need to add up all of the numbers. Don't worry...we'll walk you through it. 

The easiest buyers closing costs to figure out are the down payment and origination fees. The down payment is easy since it is in your control. However, the decision does affect how high or low your mortgage rate will be so you will want to think it through. Basically you can put down anywhere from 3.5% if you are a first time home owner with a subsidized loan, to 20% if you want to avoid private mortgage insurance. If you want to put down more than 20% more power to you. Just multiply your mortgage by the percentage and that is your down payment. A $100,000 home with 5% down costs you $5,000 in down payment.

The loan origination fee will be a little different. You will want to compare this among different lenders. Some people only compare mortgage rates not realizing that banks often make their extra money on origination fees and other 'points'. A point equals one percent of your loan. So if you have a $100,000 home, with 5% down, one point equals $950 (since your loan is for $95,000). The origination fee may be given to you in terms of points, it may be given to you as a percentage. However they calculate it, ask for it up front. 

Standard fees for closing a mortgage include: assessment, title insurance, private mortgage insurance, home owner's insurance, survey, recording of deed, and miscellaneous paper handling fees. These can add up to a little chunk of change. 

Here are some real closing costs from actual mortgages starting with a small midwest home that was sold for $54,000 with a ten percent down payment. So the loan was $48,600. Origination fee at one point = $486. Flood determination fee = $3. Flood life of loan = $4.50. Tax service fee= $74.00. Application fee = $160.00. Document preparation = $50. Settlement or closing fee = $200. Title insurance = $50. Underwriting = $175. Recording fees = $80. Document handling = $25. Total buyers closing costs = $1,307.50 (plus down payment).

For a different example from a different state, the following numbers will be on a Colorado home that sold for $222,900. Funding fee = $200. Underwriting fee = $375. Administration fee = $100. Processing fee = $495. Document fee = $225. Interest for one month at $21.2647 a day = $595.49. Hazard premium = $600. Reserves deposited with lender in escrow = $95.84 (hazard ins) + $464.38 (county taxes for 2 months). Closing fee = $115. Document preparation fee = $25. Title Insurance = $120.  Tax certification and endorsement = $110. Loan closing fee = $230. Courier fee = $20. Recording fees = $132. State tax = $22.29. Total buyer closing costs = $3,925 (plus down payment). 

The best way to get a good idea up front from a mortgage broker is to ask about the above specifics and what they generally cost. But once you have committed to a bank and have your mortgage quote locked in, you will also be required to receive a good faith estimate from your bank before closing. Be sure the buyer closing costs are reasonably connected to what you anticipated going in. If you were told a one point origination fee and you see several points showing up, raise the red flags and be ready to back out. That's real money you are talking about throwing down the drain. Also be wary of banks that want to wrap your closing costs into the mortgage. If you have good reason to do this fine, but it will raise above the current average rates. 

See related articles elsewhere on this page or more in this help with mortgages series for more informative help with your upcoming mortgage.