How to Calculate Closing Costs

When buying a house no matter a primary residence, second home or investment property there were be closing costs associated with the transaction. Closing costs are the fees paid in accordance the transaction on behalf of the third-party vendors that  inevitably are used when buying real estate.

On a purchase loan transaction, one of two parties pay the closing costs the buyer or the seller. In many markets especially there large amounts of foreclosed inventory otherwise known as REO’s (real estate owned). Banks as the sellers of property oftentimes give credits for closing costs for buyers. If there is a seller credit for closing costs, the seller pays the closing costs. If there is no credit for closing costs, the closing costs are paid by the buyer.

Here’s a handy fee breakdown to calculate the closing costs.

  • Loan origination charges
  • loan processing fee
  • credit report fee
  • appraisal fee
  • tax related service fee
  • title insurance owner’s policy
  • title insurance lender’s policy
  • flood cert fee
  • wire fee
  • tax related service fee
  • Mers fee
  • recording fee
  • real estate transaction fee in some cases
  • annual fire insurance premiums
  • prepaid items include property taxes and insurance and first installment of property taxes depending on what time of the year your closing escrow.

This is the standard list of items that you’ll see on a typical estimated closing cost statement for buying a house.

*Note: if you elect to have a monthly account set up for taxes and insurance on your home loan, the cash to close will increase because the lender has to collect for several months of property taxes and insurance to establish a billing cycle with your insurance provider and the county tax collector in the county of area where you are buying the house.

Calculating closing costs is a factor percentage of the purchase price. For example if you’re buying house for $200,000 closing costs or to run somewhere around $6000 which is 3% of purchase price.

Here’s how the math works: for properties up to $300,000 it’s usually 3% of the purchase price. As you start to move away from $300,000 on upwards into homes in the $500,000 range, you can use 2% as a general rule of thumb to estimate closing costs. Calculate closing on the home you are buying.