As a buyer, you’re made aware of the tasks you need to complete before making an offer, getting pre-approval from a lender, finding a buyer’s agent, and saving enough for a down payment. But, what you’re not made aware of are the closing costs that could deplete any money you may have planned to put toward repairs, renovations, or decor. These costs usually range between 3% and 6% of the selling price. Many buyers find themselves in the predicament of either underestimating the closing costs or, in the case of first-time buyers, not knowing they would have all these fees. Thankfully, there’s one way to avoid this predicament: knowing how to calculate closing costs.
How To Calculate Closing Costs
The most efficient method of calculating closing costs is to use a home closing cost calculator. These calculators gather data from buyers in your state or city and give you an idea of how much you should budget before you head into closing.
The more data your closing cost calculator has access to, the more accurate it will be in ascertaining what your costs will be.
For example, Houzeo and Smart Asset both have closing cost calculators that are precise at estimating your costs and revealing how much cash you’ll need at closing.
Using Houzeo, however, you will also receive a comparison of what you could pay by purchasing a home through their network to what you would pay using a buyer’s agent.
To use a home closing cost calculator, you would need to enter specific details about the purchase of a property. This includes:
Location of the Property
Whatever closing cost calculator you choose to use should allow you to input the city or zip code of the home. The reason for this is that the location establishes state tax and other state-specific regulation that pertains to closing.
Down Payment Percentage
The amount you can contribute on a down payment defines your loan amount, which, in turn, determines how much your loan costs will be.
Property Selling Price
This is the most important figure, as many of the fees and home closing costs are predicated on the selling price of the property. Generally, the cheaper the home, the less you’ll spend at closing.
You can estimate All of these costs beforehand, which could also give you an idea of what you can afford before making an offer.
Can Buyers Make Savings on Closing Costs?
Considering that the average closing cost for a $250,000 home is $8,000 – besides your down payment – being able to reduce that figure is helpful.
There are two ways you can decrease your closing costs: negotiate that the seller pays a portion of the closing costs or use a service that gives you a rebate.
Given that the property market in most states is booming, sellers aren’t inclined to agree to cover the closing costs, unless you are paying well over market value. In which case, you’re not accessing much of a saving.
However, with a closing cost calculator like Houzeo, it’s possible to make a $3,750 saving, as you receive a rebate in the amount a seller would usually spend on a buyer’s agent.
The smarter choice for buyers is to always use a buyer closing cost calculator before starting your search. This way, you know how much you can afford to offer and can initiate your search on For Sale By Owner websites to access the buyer agent rebate.