It’s important for buyers to know what your closing costs and mortgage payments are going to be when you start to look for a home and get pre-qualified. I’ve prepared a Buyer’s Estimated Closing Costs Pro-Forma: 80% FRM Loan, 6.5% Int., 10-21-07 (pdf) based on a specific scenario that shows total proposed closing costs, estimated monthly payments, estimated prepaids and reserves, and the final total estimated funds needed to close:
This scenario is based on a $200,000 purchase of a low-rise condominium, with an 80%, 30 yr., 6.5% fixed rate amortized loan, as a primary resident and a credit score of 680+. I will be preparing subsequent articles on other scenarios with explanations of the impact of different loans, second home or investment properties, credit score implications, etc.
This is basically my version of a lender’s Good Faith Estimate, which is something you should get from any lender signed by them that you are getting quotes from. Sunbelt Lending is our affiliate mortgage correspondent lender and the loan officer in our office is Noel Livingstone his cell number is 561-843-1983 if you want to discuss any other particular questions or situations.
Some of the line items will vary depending on the specific mortgage parameters type of loan, amount and interest rate – this is for an 80% amortized loan, which means a loan that you pay both principal and interest. I used 6.5% – interest rates have been fluctuating (as they do on a daily basis), but this gives you some idea. Whatever loan amount you get, an easy way to calculate principal and interest on an amortized loan is to use the following factor:
- at 6.5% rate use 6.33 per $1000 of the loan amount, eg 6.33 x 160 – $1012
- at 6.375% rate = 6.24 per $1000 – payment = $998
- at 6.25% rate = 6.14 per $1000 – payment = $995
Here is a link to Sunbelt Lending’s Weekly Mortgage Newsletter of 11-4-07 (pdf) highlighting this week’s mortgage rates and commentary, and snapshots of the Leading Economic Indicators. Additional mortgage information can be found at Freddie Mac.
Loan, Title and Government/Recording Charges:
These loan, title and government charges are based on this scenario and from our Sunbelt Lending and Sunbelt Title affiliates. This scenario assumes an 80% amortized loan (principal and interest), primary residence, and minimum 680 FICO credit score. These charges are going to be the same for different loan amounts, except for a couple which are based on the loan amount such as the Doc Stamps and Intangible tax.
Surveys are required for single family and townhomes but not condos. Inspection fees will vary with the type of property, about $350 is for a single family, and maybe $250 for a condo. Coldwell Banker regulatory compliance fee is a charge required based on our state requirements. HOA or Condo Association application is also per the association’s fee, but $100 is about standard. Home Warranty is optional.
Estimated Monthly Payment:
If you go higher than the 80% loan and do 2 mortgages, some of the above loan, title, and government fees will be higher because there are 2 lenders. Or you can also go higher and only have one loan but pay mortgage insurance. The final monthly payment won’t be that much different with 2 loans, the 2nd above the 80% is usually an equity line and the interest will fluctuate with the prime rate.
Mortgage insurance is based on the loan amount again, so under the Estimated Monthly Payment Mortgage insurance line, for example, on a 90% loan, the extra payment would be .52% per year of the loan amount of $180,000, or $936 per year which is $78 per month. Actually, most lenders, if after a certain time period and when the loan amount drops to under 80% of the market value of the property can drop the mortgage insurance portion.
- 100% loan = .96% per year
- 95% loan = .785 per year
- 90% loan = .52% per year
- 85% loan = .32% per year
Estimated Prepaids and Reserves:
Interest proration depends on the day of closing, I estimate in the middle and use 15 days. You�re always paying for the balance of the month you close, so if you close earlier in the month of November, for example, it�s more, if later in the month it�s less, and your first monthly payment won�t be until January 1st, you always pay in arrears.
The Property insurance premium depends on the lender and type of property � they actually don�t require content insurance on condos, but will require insurance for all properties where the exterior building insurance is not included in the HOA (as for single family), but having that content insurance is highly recommended. If required, the lender wants the first year premium to be paid in advance before you move in, and then you escrow each month for the next year�s premium and the lender pays it when it is due. Flood insurance is the same thing if you are in a flood zone. Depending on the loan amount and on the higher loan ratios, they usually require escrows on the insurance and property taxes and they will pay them when they are due. So under the Prepaids and Reserves, they require 2-3 months reserves up front so there is a little extra reserve in the escrow account.
Total Estimated Funds Needed to Close reconciles the various sections:
- Down Payment is your total down payment per your contract
- Closing Costs is the total of column 1
- Prepaids and Reserves shows that section�s total (plus your subtotal to that point)
- Less POC, which means paid outside of closing � the items marked that way on various lines means you are paying them up front to 3rd parties, but they are shown here to show you your total cost for buying the home. So appraisal and credit report are paid to the lender or mortgage broker, inspection fee is paid to the inspector and the HOA fee is paid to the association when you make application there.
- Less Deposit, means less the initial deposit you made on the contract (plus your subtotal to that point)
- Total Cash Needed to Close � is the total amount you need to bring to the closing table (by cashier�s check or wire transfer, no personal checks)