No one likes to be caught off guard when it comes to their money. It’s a whole lot better to know what’s coming ahead of its time so that you can plan accordingly. This is undeniably true while buying a home. Before purchasing a house and taking on a mortgage, you need to identify everything you can about how it will affect your finances. And, the one cost in this whole home-buying process that is particularly hard to pinpoint is closing costs. This is why a closing cost calculator is vital while purchasing a house. It will help you get an idea of the expenses you will encounter at closing and what kind of savings you will need at the closing table.
Home closing costs are an umbrella term for the one-time expense that you must pay when you choose to buy a house. Home closing costs have to be paid upfront and cannot be rolled into your mortgage, in most instances. They are a mixture of different expenses – such as inspection fees, land or property transfer taxes, and lawyer fees – the reason why you need a closing cost calculator to determine them in advance. Let’s delve into the details of the home closing cost calculator.
What Exactly Does the Calculator Do?
If you go through online websites for getting an estimation, their best guess for closing costs would be typically between 2 and 5% of the home value. Even on a $200,000 house, that means closing costs could be anywhere between $4,000 and $10,000. Plenty of factors affect the closing costs while buying a house – the type of mortgage, the state in which you purchase the house, your lender, and the real estate professionals who are assisting you to close a deal, to name a few. Altogether, closing costs are a muddled blend of different fees. So, you need to add the details of your loan in the cost calculator to get an evaluation of the fees you will pay at closing — also known as mortgage settlement. The calculator breaks your closing costs down into five groups, namely, mortgage insurance fees, property-related fees, loan-related fees, property tax and homeowner’s insurance, and title fees.
When to Use it?
- When you decide to purchase a property: Evaluate your closing costs using a property closing cost calculator when you start budgeting your finances to buy a property. This will help you plan and save your money better.
- When choosing a mortgage lender: You can use the estimated closing cost calculator to find your closing costs, compare your offers and choose the best mortgage lender.
- When purchasing a house: As and when you receive an offer on a house that you like, estimate your closing costs immediately using the closing cost calculator and find out if the house is within your budget.
What’s Included in Closing Costs:
- Points and Lender Fees – These are origination fees usually paid to the lender. Points and lender fees typically consist of mortgage broker fees, loan origination fees, and discount points.
- Third-Party Fees – These are expenses payable at closing that are not directly associated with municipal taxes or lender fees. Third-Party fees usually consist of appraisal and inspection fees.
- Pre-paid Costs – These are costs that your lender will charge you. Pre-paid costs include annually due taxes, prorated interest expenses, HOA dues, and monthly insurance mortgage premiums.
- Escrow Costs – These are sums of money payable at closing and are owed to the escrow company, the attorney appearing for the closing, and the title company that hosts the closing event.
Plenty of cost calculators are available in the market, such as Houzeo, Bank of America, SmartAsset, and NerdWallet. You can use any of these calculators to determine your closing costs when you purchase a home. Primarily, closing costs are a one-time expense and it’s best to pay them upfront. If the lender agrees, you can also choose to finance the closing cost into the mortgage amount. However, it’s not recommended because you will be paying interest on these costs. Do not forget to check out the first-time homebuyer programs offered by different states. These programs might help you meet your minimum down payment requirements and calculate your buyer closing costs.
How to Reduce the Closing Costs?
When you are buying a home and getting a mortgage, closing costs are imperative. Apart from a few costs that are fixed, most of the closing costs can be negotiated. If you want to get a better deal, use your negotiation skills to good use. The lender fee is where you can cut down your closing costs significantly. The lender fees, one of the largest closing costs, can be close to 1% of the loan amount. Check out different lenders and carry out appropriate negotiations to bring down the lender fees. You can also find many other variable fees where better research and negotiation can help you save a lot of money.
The Benefits of Using a Home Closing Cost Calculator:
You do not necessarily have to apply for a mortgage to see an estimate of costs using the estimated closing cost calculator. Having an estimate while you are saving for purchasing a home will stand you in good stead, by giving you enough time to plan right. As a potential home shopper, you must already know that you need to save a lot for the down payment. However, the additional thousands of dollars in closing costs will put you in jeopardy, if not known prior to closing. Also, the closing costs may differ by state and county, and the property closing cost calculator offers estimates that you can adjust in accordance with the state in which you want to buy your house.
When you are reviewing your finances and exploring ways to fund the purchase of a dream house, remember to make time to calculate your closing cost. Find out your closing costs using a home closing cost calculator and formulate a realistic budget in advance. This will help you dodge unwanted surprises down the road. So, what are you waiting for? Find your closing costs, plan your finances better, and start your journey towards your dream house!