This is a video overview of my closing cost worksheet.
Interest Rates – cost worksheet
I’m going to show you a little bit about it and how it works. First of all, it’s important to note that interest rates can change at any time. So any terms that you see on a worksheet like this can change at any time. The bond market, which is what interest rates track, is just as dynamic and changes just as frequently and with just as much volatility as the stock market on a day-to-day basis. So do realize that rates and terms change.
In this scenario, we’re looking at a 30 year fixed rate, $700,000 sales price home with a $630,000 loan amount. So that is a 10% down payment with 90% financing.
Annual Percentage Rate (APR)
You can see the interest rate quote, and the APR. You can click this for a link that goes to an article about APR. APR is a confusing topic. I don’t really think it’s a good measure of an interest rate. I’d rather have people look at the overall totality of the fees in this worksheet. APR is a shortcut that I don’t feel is accurate and efficient.
The first thing that you need to do is look at the fees that the lender is charging. And as you can see, I put the lender fees in blue. And you see that in this particular example, there are no discount points. And then there’s the appraisal fee. We don’t charge an appraisal review fee, credit report fee, processing fee, application fee, and a flood certification fee. Those are the only fees that we charge. Which if you look at the total closing costs, our fees are a very, very small percentage of the total.
Title Company Fees
If you go to the green fees, the green category are fees to the title company. This includes any closing or escrow fee of theirs. Title search, title binder, carrier. Then we have lender’s coverage title insurance, which is mandatory, owner’s coverage title insurance, which is optional. You can click this link to read an article about the optional owner’s coverage title insurance. Any survey recertification fee would go here.
State/County/City Recordation and Transfer Taxes
And then in red, some of the bigger fees go to the state and county. In this case, we have about 1.2% going to the state and county for recordation and transfer taxes. I’ve got this particular worksheet set up for Montgomery County, Maryland. That’s going to be about 1.2%. Although that can change. It also changes by area. Washington DC can be anywhere from 1.1 to 1.45 percent. Virginia could be down as low as 0.65 to 0.7 percent.
Variables and Other Fees
Lots of different formulas based on different variables. So it’s important to look at these worksheets, but realize that there could be some variables depending on what you ultimately buy. Going down, this particular worksheet has zero for a condo questionnaire because I’m setting this up as if it were a single family home. But if you’re buying a condominium, you would have to pay for a condo questionnaire, which is a document that goes to the property manager and asks a bunch of questions related to the fiscal stability and other things going on with the condominium budget. Then if we keep going down, this is a a subtotal. This tells you the total of the closing costs, but there’s more cost. I break them out into a different category.
Prepaids and Escrows
I call them the prepaids and escrows. These are monies that you pay at closing. They’re not necessarily a closing cost to get the loan because if you paid cash for a property, you would still have to get homeowner’s insurance and you would still be paying property taxes. So I label these prepaids and escrows. They are, as you can see, homeowner’s insurance – 15 months. 15 months is collected because you pay for one year in advance. That’s the whole point of an escrow account, is to pay in advance. You pay two months as a cushion, and then you pay another month into a account that goes towards the next year’s bill. So by the time the next bill comes due, 12 months from now, you’ll have more than enough money to pay the second year bill. Same thing for property taxes. In this example, I’ve got it set up that the lender would collect six months at closing. That could be more. That could be less. It depends on what county. It depends on when the cycle of their due dates are for their property taxes.
And then prepaid interest. You would pay a certain number of days of prepaid interest. In this case, I put 20 days, which would assume that maybe you would be closing around the 10th of the month. You wouldn’t have a mortgage payment due the first of the month after closing. For example, if you were going to closing on October 10th, you would pay 20 days of interest for the rest of October, and you would not have a mortgage payment due November 1. Your first mortgage payment would be due December 1. So the prepaid interest is a mini mortgage payment, if you will, for the month that you go to settlement and buy the home in.
And then you’ve got your total prepaids and escrows. That’s a subtotal of the prepaids and escrows. And then the next line item is your total estimated closing costs plus the prepaids and escrows. So this is everything you’ll pay at closing. The $17,000-plus in closing costs, the $7,000-plus in prepaids and escrows totals in this case, $24,694. If you’ve given an earnest money deposit, I would back it out here. If there’s any seller credit, I would back it out there. Then you’ve got your down payment that I would deduct. And then this is going to show you how much you’re due to pay at closing. Your down payment of 70k plus the closing costs and escrows and prepaids of 24k totals 94k.
And then a little further down in the next box, you get a breakdown of your mortgage payment. The mortgage payment itself, the principle and interest payment. But of course that does not include property taxes, homeowners insurance, mortgage insurance. If you don’t have 20% down, you’ll be paying mortgage insurance. If there’s any HOA fee, which in this case there’s not because it’s a single family home. And then your total payment. So that gives you a good overview of my estimated cost worksheet.
Watch out for hyperlinks
There are, as I said, some links in here that you can click on discount points, on owner’s coverage title insurance. You click, that would be a hyperlink that would take you to a blog. You can also click this hyperlink on the mortgage insurance that would take you on a blog on how to get rid of your mortgage insurance and drop the PMI at some point in the future. And of course, feel free to check in with me with any questions. This is a lot to digest. People usually have questions. Don’t hesitate to ask.