How To Estimate Closing Costs

As a first time home buyer, you can . It's good for you to be able to estimate closing costs on your mortgage. They can help you do this. Home closing costs can really hammer you. By being prepared ahead of time, you avoid the surprises most receive at closing.

How Home Closing Costs Estimates Help Me?

Home closing costs estimates done by you are also important for comparing different Good Faith Estimates, or GFEs. On January 1st of 2010, the regulations on GFEs changed. HUD changed them to, theoretically, make it easier for buyers like you to compare different lenders' fees and mortgage closing costs.

Lenders are generally not happy with the new GFE and say that it actually makes it harder for you to estimate closing costs. Also, it could now make application fees more costly to consumers. HUD changed the regulations to prevent dishonest lenders from low-balling honest ones to steal their prospects.

What is a Good Faith Estimate (GFE)?

The GFE is truly an "estimate". The "good faith" part means that the lender is pledging to give you the most accurate rough estimate possible. But your actual closing costs might be higher (or even lower) at the closing table, for the lender does not have complete control over all of them. All in all, the new Regulation Z says that with few exceptions, the costs cannot go up at the closing table--a new headache for lenders.

If you estimate closing costs yourself in advance, then you will have much better chance of knowing which lenders are giving the competitive deals and which ones are the low-lifes. You do not want to live the nightmare of having the closing fall apart because of wildly underestimated home closing costs.

Where to Start Estimating Closing Costs?

So, begin to estimate closing costs on your mortgage by adding up the loan application fee, origination fee, document preparation, any accounting service you may use to ensure you pay your property taxes, and any flood insurance coverage that you might need. If you need a flood inspection to determine this, add that in, too.

When you estimate closing costs, also figure in any "points" you might pay. A "point" equals one percent of the amount of money you borrow from the lender. You may choose to pay a few points at closing in order to buy yourself a lower interest rate. First time home buyers often pay two or three points. Points can also be written off on your income taxes.

Do not forget to figure in notary fees, money wire transfers, courier service, home appraisal, surveying, and any other inspection fees. These are easily overlooked costs when first time buyers go to estimate closing costs.

And there are still more closing costs! Now add in any title fees, escrow costs, property taxes (which in part may have to be paid at closing), and one year's worth of premiums on homeowner's insurance (which typically must be paid at the closing table, too). Check your property's state regulations to see if a real estate attorney will be required; if so, figure in paying him, also.

Why Private Mortgage Insurance (PMI) is Part of Mortgage Closing Costs?

Are you paying at least 20% down against the total purchase price of the property? Good, then you do not have to worry about PMI. If you are not, another one of your mortgage closing costs will be PMI insurance, to protect the lender in case you default. You only have to pay this annoying premium until your loan's outstanding principal is less than 20% of the value of the property.

Average Closing Costs

The average closing costs come in around $4,000. However, this number depends on several factors and may be higher or lower for you. Loan size, interest rate, type of loan program, and state and county regulations all come into play here.

When you go to estimate closing costs, do not forget to subtract out any costs that are being paid for you by a third party. You may be getting a "gift" or a contribution from the seller. These are covered home closing costs that still must be paid, but you do not have to pay them yourself. You will find the lender's estimated closing costs on page 1 of the new three-page GFE.

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