Estimate Closing Costs On Your Mortgage

Hello there first time home buyer, thank you for stopping in and reading this important article on how to estimate closing costs for your mortgage. As you may know, mortgage closing costs can really sneak up on you and knock you in the head if you're not prepared in advance.

It is very important that you get an accurate good faith estimate when applying for a mortgage. As of January 1, 2010 the regulations on good-faith estimates have changed. What HUD did is they changed the good-faith estimate to make it better for the customer. The jury is still out on that, many feel it has complicated matters a great deal.

For the most part lenders are not happy with the new GFE and the lenders say that it makes it much harder for you the customer to actually estimate your closing cost. This also could cost consumers more money in application fees (which HUD also changed) to prevent dishonest lenders from lowballing the interest rates just to steal prospects.

What does GFE stand for? It means "good faith estimate" and this is a very important document that a lender must give you within 2 to 3 days of making a loan application. The very word "good faith" should tell you that it's not an actual cost but a close estimate. The actual cost may be higher or perhaps even lower when you get to the closing table, the lender does not always have complete control over the cost until they get closer to the closing, so that may be reason for a difference in the numbers. All the new regulations with a few exceptions have actually created a new headache for the lenders.

If you try to figure closing costs for yourself in advance, you will have a much better chance of knowing which lenders are actually giving the best deal and which ones just are no good and not worth dealing with. The last thing you need is a nightmare after the closing because of under estimated home closing costs.

So, if we are going to estimate the closing cost on your mortgage, let us begin by adding up some of the fees. Some may charge a loan application fee, also you could expect an origination fee, a hidden cost document preparation may show up on your GFE also. Likewise you will have title closing costs, flood insurance, property taxes and other inspections that may add to the cost as well.

While estimating closing costs, we also need to figure in points. You may wonder what are points? Simply put a point equals 1% of the amount of money that you borrow from the lender. The only reason you will pay point(s) is if you want to buy down your interest rate. Many first-time home buyers may pay 1% or 2% to get a lower interest rate. By the way, you can write points off on your income taxes, but this is not a good reason to pay them.

Do not forget the notary fees, the courier service, money wire transfer fees, home appraisal, surveying, as well as other home inspection fees. These are costs that are often overlooked by first time home buyers when estimating the total closing costs on a new mortgage.

That is not all, there are still other closing costs. We also need to add title fees, property taxes, escrow costs, plus one year's worth of premiums for your homeowners insurance. Be sure to check your own property state regulations to see if a real estate attorney will be required. If so, you have to figure in attorney fees too!

How much will your down payment be? Will it be 20%? If not there is another fee you need to think about. If your mortgage amount is more than 80% of the house value, then you will also pay Private Mortgage Insurance (PMI). PMI insurance is to protect the lender in case you default. This annoying premium will remain there until your outstanding loan balance is below 80% of the value of the property, unless of course you are getting an FHA loan.

For many homes the average closing costs are around $4000. But you must keep in mind that this number depends on many factors and can be higher or lower for you. You have to keep in mind the loan size, your interest rate, what type of loan program you have, and all the state and county regulations.

So when you estimate closing costs, do not forget to include any cost that are paid by a third party. For example, if you are getting a gift or a contribution from the seller, these costs are actually covered by you, the buyer, rather than the seller. This is the case even though you do not pay them yourself. Normally you will find them on page one of the new three-page GFE.

So, hopefully you can see the importance of doing a good estimate of closing costs for your new mortgage. By being prepared, you will not have any surprises when you get to the closing table. One last reminder, always ask for a new GFE a day or two before closing. This way you will know your exact closing costs and how much money you need to bring to the closing.

By: Jeff Ragan

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Jeffrey Ragan has several years of experience helping people reach their goals and wants to help you learn more about estimating closing costs and other helpful information on their website, First-Time-Home-Buyer-Solutions.com.