Closing Costs Explained
Your downpayment isn’t the only payment that is due at closing. There are other one-time expenses you need to budget for when you close on a purchase of a home.
Getting a mortgage and closing on a property isn’t free. These costs may include escrow fees, appraisal fees, title insurance, title searches, discount points, and more. In San Francisco, you can expect your closing costs to be 1-2% of the purchase price.
Below is a sample Closing Disclosure to help you understand common closing cost fees. The featured property is a San Francisco condominium sold in November 2020.
You can also view the full sample Closing Disclosure here.
Watch our accompanying YouTube Video all about Closing Costs!
Understanding Closing Costs (Photos with Explanations)
The first page of the sample is a summary of the loan provided by Wells Fargo.
Purchase price: $735,000 (1)
Conventional Loan Amount: $335,000 (2) with an interest rate of 2.625% (3)
Downpayment: $400,000
Monthly mortgage payments are $1,345.53 (4). This monthly payment excludes property taxes, HOA fees, and insurance.
The additional monthly payment that includes property taxes (paid biannually), HOA dues, and insurance was estimated to be $986.74 (5). In reality, the additional payments for this client were closer to $1,050. This brings the total monthly costs to own this condo to $2,395.53 ($1,050+$1,345.53).
According to this disclosure, one-time closing costs come out to be $8,173.35 (6). Again, this is an additional payment you need to budget for. The next few pages break down this cost.
Let’s get into the details:
(A) Origination charges are fees charged by the lender in exchange for processing a loan. It is typically between 0.5% and 1% of the total loan amount.
(B) In this section you’ll see other required fees, namely the appraisal that is ordered by your lender, plus escrow fees.
(C) The services in section (B) can be shopped around with other providers. This client opted not to do so, hence this section is blank.
Total costs associated with the loan are $4,709.46.
Other costs:
(E) These are other minor government fees.
(F) Here are prorated costs the buyer was responsible for as ownership was transferred on November 2nd. The property taxes that are left blank in Field 04 are noted elsewhere in this disclosure (see section K). Lenders also require you pay homeowner’s insurance for one year upfront.
(H) As a buyer you’ll be happy to know the seller is responsible for the realtors’ commissions. In Field 03, however, the buyer paid for title insurance. This insurance is one of the more expensive costs, but it protects against losses that occur when title to a property is not free and clear of defects. In other words, it’s pretty important.
Summary:
(K) Sale Price of Property + Closing Costs + Prorated Property Taxes + Prorated HOA (Nov) = TOTAL DUE
Congratulations, you made it this far!
This buyer will pay a total of $153,489.07 in interest over (7) the next 30 years, and probably got some sticker shock when she saw this calculation. Hopefully this encourages you to shop for the lowest rate possible, and remember that your mortgage payment will remain the same for 30 years… unlike rent.
The APR (8) is a broader measure of the cost to you of borrowing money since it reflects not only the interest rate, but also the fees that you have to pay to get the loan.
