October 11th, 2016 7:59 AM by Jackie A. Graves, President
When people are looking to buy
a home, they may be thinking about how much they’ll need to save for
a down payment or what monthly mortgage payment they can afford. But there’s
another expense prospective homeowners should consider before taking out a
mortgage: closing costs.
When you take out a mortgage, there are fees that you’re
going to pay to various service providers besides just the mortgage company.
These fees can be broken out into nonrecurring and recurring costs.
Nonrecurring closing costs are the one-time fees you pay when you secure a
mortgage for a home. These include the lender origination fee, appraisal fee,
title fee, notary fee, document prep fee — essentially every fee paid just one
time in conjunction with completing the transaction. Recurring closing costs
include interest, insurance and taxes, which are normal costs associated with
owning real estate.
costs include all recurring and nonrecurring closing costs; real closing costs are the nonrecurring
closing costs that you pay one time to take out a mortgage — essentially
the costs associated with borrowing money.
The following scenarios assume you have taken a no-points
loan. (Points are upfront overhead you can pay to purchase a lower rate of
interest and subsequently a lower monthly payment.) Closing costs generally run
between 3% and 5% of your purchase price but can vary depending on location and
other factors. Here are rough estimates of the closing costs you can expect to
pay by purchase price, assuming they fall on the higher end of that spectrum,
based off of my experience as a mortgage professional:
Purchase price $200K-$300K: closing costs $7K-8K
Purchase price $300K-$400K: closing costs $9K-10K
Purchase price $400K-$500K: closing costs $10K-$11K
Purchase price $500K-$600K: closing costs $11K-$12K
Purchase price $600K-$700K: closing costs $12K-$13K
Purchase price $700K-$800K: closing costs $13K-$14K
Purchase price $800K-$1 million: closing costs $15K-$16K
All of these scenarios account for setting up an impound
account for property taxes and insurance and are reflective of total closing
costs including both recurring and non-recurring closing costs.
Refinancing contains lower fees and only one form of
title insurance is needed: a lender’s policy. My estimates of the closing costs
for no-points refinancing by loan amount are:
Loan amount $100K-$400K: closing costs in the $3K range
Loan amounts $400K-$600K: closing costs in the $3,500 range
Loan amounts $600K-$1 million: closing costs in the $4K range
Note: These refinance
figures are reflective
of real closing costs only; they don’t account for any prepaid taxes or
Keep in mind, these scenarios are meant to simply provide
a baseline for you. The bottom line: If you’re planning to purchase a home or
refinance one you already own, be prepared for the fees. Closing costs can be
financed, paid for in cash or come in the form of a gift. Additionally, these
can come in the form of the seller credit when buying a home.
Remember, too, a good credit score can help
make your home loan more affordable since it generally qualifies you for the
best terms and conditions on a mortgage. You can see where your credit
currently stands by viewing two of your scores for
free, updated every 14 days, on Credit.com.
by Scott Sheldon - To view the original
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