What can a new home buyer expect to pay in closing costs?

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Closing costs often confuse a lot of first time buyers and it is complicated. There’s a lot of different categories. Closing cost means total amount of closing costs. What do we have involved in closing costs? We have a lender typically, aka underwriter, investor, whatever you want to call. So you have a lender, appraiser, and then you have some odds and ends small stuff like a flood certification and credit report fee, and then the title company. Another part of closing costs that a lot of people forget about is what we call Prepaids and/or Escrows. I want to summarize all of that so you know what’s what? You have your actual costs category, and then you have your Prepaids and Escrows. They’re not really costs. Ofcourse you have to bring the money to closing, but it’s your money. So it’s not a fee-based cost. 

We’re using an average closing cost of 300K loan amount, which is the average in St. Louis. Let’s get into your prepaids/escrows. These are all estimates and it does not mean it’s exact whatsoever. So you have a home insurance premium of about 1800 bucks, and then you always have to keep about 3 months in reserve. A lot of people don’t realize you have to pay the full premium in full at the time of closing. So just your home insurance portion of closing cost alone is 1800 + 450 = 2250. 

Then we talk about your taxes. Let’s say your annual taxes is 3800. We’re going to want to keep a three month reserve of your taxes averaging a monthly fee of 320 and to keep a three month reserve for your taxes and that would become part of your closing costs as well. (320×3 = 960) And that total is about 960 bucks. Already you have 2250 plus 960. You’re already at about 3200 dollars.

Your next category is Interest. People always forget about this. The second you close out of a house, you own a house. If you close on the 15th of the month, you pay the interest from the 15th to the last day of the month. So roughly about 15 more days in interest, I’m just going to give it a generic cost of about 800 more dollars.

So just in your prepaids and escrow alone for closing, you have 3900 bucks, let’s just call it 4000 dollars total. I like to use round numbers by the way. It’s just easier to understand. 

Now let’s go back up to the fee-based items. Investor fee/lender fee is always somewhere between 900 and 1500 dollars, so let’s just call it 1200 today. Just pick an average number. Appraisal is between 475 and 700 dollars. If it’s a Jumbo, it could be a lot more than that. I’m just trying to pick averages. So let’s just call that 600 dollars in appraisal. Flood certification or credit report could be anywhere from one and three hundred dollars depending on how many people are applying for a loan so on and so forth. So let’s just call it another 150 dollars. And then you have title company. Title charges are going to vary anywhere between 1800 to 2500 dollars on 300K home loan. So let’s just say total title company is going to be about 2200 dollars. When it comes to fees, these are actual charges that get paid out to third parties. So you’re going to have 2000 plus another 2000, so basically a 4200 total in fee-based closing costs. 

So 4200 and 4000 have a total of about 8200 dollars that you will need to budget for on a 300K purchase. And that’s all your categories in your closing. I know that seems extensive, and it could be high but it just depends. If someone were to call me and they wanted to be pre approved and they said Pete, what’s the closing cost on a 300K purchase, I’d probably say somewhere between 7500 and 8500 dollars all in, including everything, taxes, insurance, all of your costs, interest, the whole nine yards. That is about where closing costs would be. And again, please remember that depending on what type of loan matters a lot too. FHA has different closing costs, and VA loans, and Jumbo loans have different closing costs than a conventional loan. So all these categories can be different. This is just a general broad educational example of what total closing costs on an average loan amount of about 300K bucks could be. And I would budget about 7500 – 8500. That’s it. 

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