How Much Does My Home Loan Cost?
February 20, 2024
We typically encourage house hunters to aggressively compare lenders and FHA loan options. But what about the steps before all that, when you are comparing costs and trying to make a budget for buying your new home?
It pays to compare sources of information about loan costs, you may get a different answer from each source.
Knowing how to realistically budget and save for your loan means getting an idea of the average typical costs might be. What are they?
What to Know About Closing Costs
Forbes reports closing costs between 2% and 5% of the sale price of the home. Compare that to NerdWallet’s estimation of closing costs as being between “2% and 6% of the loan amount.”
Keep in mind that your loan amount may include add-ons such as a financed upfront mortgage insurance premium, discount points, and any energy efficient add-ons you include with the loan.
That means that closing costs based on the loan amount could be higher (due to the larger amount) than for home loans where closing costs are calculated as a percentage of the sale price. Your experience may vary.
One last look at closing costs from a third source. CNBC reports, “The rule of thumb is to budget between 3% and 6% of the loan amount for closing costs.” As you can see, these three sources don’t agree fully but you can get a good idea of an approximate amount to plan on spending.
What Closing Costs Should I Expect?
According to Forbes, lender fees up to 2% of the loan amount, plus loan fees for inspections, appraisals, surveys and title fees.
There is also the mortgage insurance aspect to consider for those applying for FHA mortgages, or conventional loans where less than 20% down is paid.
According to NerdWallet, closing costs include those items plus discount points (to reduce your interest rate, flood zone determination, and government recording fees. CNBC adds credit report fees and homeowner association fees where applicable.
Some Fees May Be Optional
Some fees may be borrower-chosen and not part of the cash required to close on an FHA mortgage. Legal fees are in that category, and so are real estate agent fees. Some borrowers choose both, others choose neither. If you are in the latter category, you won’t have to save any extra money for those services.
The bottom line is that you should review multiple sources for closing cost information to get a wider perspective about costs you can anticipate in the planning stages of your mortgage.
------------------------------
Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we'll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner's Insurance
Step 9: What to Expect at Closing
It pays to compare sources of information about loan costs, you may get a different answer from each source.
Knowing how to realistically budget and save for your loan means getting an idea of the average typical costs might be. What are they?
What to Know About Closing Costs
Forbes reports closing costs between 2% and 5% of the sale price of the home. Compare that to NerdWallet’s estimation of closing costs as being between “2% and 6% of the loan amount.”
Keep in mind that your loan amount may include add-ons such as a financed upfront mortgage insurance premium, discount points, and any energy efficient add-ons you include with the loan.
That means that closing costs based on the loan amount could be higher (due to the larger amount) than for home loans where closing costs are calculated as a percentage of the sale price. Your experience may vary.
One last look at closing costs from a third source. CNBC reports, “The rule of thumb is to budget between 3% and 6% of the loan amount for closing costs.” As you can see, these three sources don’t agree fully but you can get a good idea of an approximate amount to plan on spending.
What Closing Costs Should I Expect?
According to Forbes, lender fees up to 2% of the loan amount, plus loan fees for inspections, appraisals, surveys and title fees.
There is also the mortgage insurance aspect to consider for those applying for FHA mortgages, or conventional loans where less than 20% down is paid.
According to NerdWallet, closing costs include those items plus discount points (to reduce your interest rate, flood zone determination, and government recording fees. CNBC adds credit report fees and homeowner association fees where applicable.
Some Fees May Be Optional
Some fees may be borrower-chosen and not part of the cash required to close on an FHA mortgage. Legal fees are in that category, and so are real estate agent fees. Some borrowers choose both, others choose neither. If you are in the latter category, you won’t have to save any extra money for those services.
The bottom line is that you should review multiple sources for closing cost information to get a wider perspective about costs you can anticipate in the planning stages of your mortgage.
------------------------------
Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we'll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner's Insurance
Step 9: What to Expect at Closing
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