Ughhh Closing Costs! How to properly estimate????

Question

Hello BP community,

I'm currently attempting to figure out how to accurately "guesstimate"  the amount of closing costs for a residential property.  I understand that closing costs include fees incurred by the title company and the mortgage company as well.

Is there a formula that anyone uses?

I was doing some research and I've seen an individual multiply the purchase price by 9% to obtain a "guesstimation" for closing costs .  I used that formula on a property purchased for $265,000 and closing costs came out to $23,850.  That number seems like much.

My question to the experienced investor:  Is this formula viable and dependable?

Thank you in advance for your answer(s)

Doug Todd · Answer

Nicolas is correct, have your lender run an estimated cost sheet for any financing scenario you're considering.  It will show the monthly payment and a breakdown of all your closing costs.  Or use your Realtor, in Omaha we're required to provide this information to buyers prior to making any offers.  If your "team" isn't providing this to you, it's time to find a new lender/Realtor.

Scott Wolf · Answer

@Obed Bermudez my firm provides title quotes nationally if you'd like to get the true closing costs on the title insurance side of the transaction.

Nicholas L. · Answer

@Obed Bermudez just ask a lender.

Grigory Pekarsky · Answer

The amount of closing costs for a home can be quite large. In fact, the average buyer spends about $3,000 in closing costs when purchasing a home. However, there are many different fees that go into calculating these costs and it is not always easy to estimate what will end up being owed at the end of the transaction. In order to accurately "guesstimate"  the amount of closing costs for a residential purchase, you really need to break down each fee and providing you with an estimated range so you know if your total cost falls within this range or not.

Andrew Bang · Answer

With a purchase of 265k.  About $1200 for title, 6% for realtors = 15,900, if there's an HOA $500.  Mortgage lender charges 1 point+ loan docs $3,650.  Taxes and insurance paid up front another $1000.   So $22,250.  Quick estimate of 9% is in the ball park.

Chris Mason · Answer

You need to call a local loan originator for an accurate estimate. In my area you can cross a city line or school district boundary, and boom there's a $2000 to $10,000 difference in closing costs, easy, standard, happens all the time, even if it's with the same title, escrow, lender, etc, in both cases.

Eric Goldman · Answer

A lot of title companies have estimated title cost calculators, they will give you pretty close estimates. I would always talk to your lender or broker. No deal is the same.

Evan Polaski · Answer

@Obed Bermudez, as others have mentioned, it comes down which side of the transaction you are on and very unique to each transaction.  Buyer or seller? Cash or loan? FHA or Conventional?  Zero, one or two agents involved?

If you are buyer, traditionally, you don't pay the agent commissions.  If you are the seller, traditionally you do, which tends to be the largest cost in the transaction.  You can use flat fee listing services, or if you are a realtor, you can waive your portion of the commission.

Also, when talking to a lender, they will be able to outline their fees, but it sounds like you are also including the establishment of escrows which is not a fee, but does effect the amount of cash required to close for the buyer.

The other big one, that depending on transaction size and interest rate, is the prepaid interest.  When closing the loan, the buyer will need to prepay the partial month interest.  I am closing a refi loan on Monday, and my prepaid interest will be about $1,500 since I am closing so early in the month.  If I closed end of month, it would be much lower.

Lastly, I have found the price point of the sale also matters.  Lower cost homes typically have buyers that want closing cost assistance.  From the seller perspective, this is a cost of sale. If I am selling below $250k price point, I assume buyers will want $3-5k in closing cost assistance.

Obed Bermudez · Answer

Thank you Grigory

Obed Bermudez · Answer

Thank you for the response Andrew.  Appreciate it very much!

Ughhh Closing Costs! How to properly estimate????

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