Cash to Close
The Components of Cash to close are important and often misunderstood. Don't worry about manually calculating cash at closing; we have a pricing engine that performs all of that. The tutorial below will assist you with the basic understanding to make good decisions and effectively shop for your mortgage loan.
Down Payment: Down Payment is simply the Contract Sales Price less the Loan Amount
LTV (Loan to Value): LTV is calculated based on the "lower of" the sales price or the appraised value. Example a borrower wishing to put 3.50% down on 100,000 sales price, FHA loan would calculate LTV of 96.50%, 100,000 X .9650 = 96,500. If the appraised value came in at 98,000, the calculation would be 98,000 x .9650 = 94,570. In short, if the appraised value comes in lower than the sales price, the borrower would need to bring additional down payment to support the requested 97.5% LTV, OR, re-negotiate terms with the seller.
Third Party Closing Costs Fixed: Third party fixed includes but is not limited to title company fees, appraisers, credit reporting agencies, survey company (if required.) Below are examples of third party (aka non-origination charges) a borrower could expect to pay in Texas (est.)
- 600 Appraisal
- 75 Credit report
- 600 3rd party processing
- 300 Doc Prep 3rd Party
- 6 Flood Cert
- 69 Tax Service
- 475 Title - Closing/Escrow
- 150 Title - Endorsement Fee
- 6 Title - Guarantee Fee
- 150 Recording Fees
- 13 E-Recordtr
- 400 Survey
Total Fixed 3rd Party: 2850
Third Party Variable: Loan amt X .0015 = ________ Texas normal and customary borrower (after seller credit) for Owner's Title Policy
Total W/Third Party Variable: Example 300K Sales Price / 240,000 Loan Amt = 2,850 + (240,000 X .0015 = 360) = 3,210
Hazard Insurance: Sales Price X .0070 = ________ Standard Hazard Annually. Borrower Must Bring 12 mos (Full Year Policy) For Insurance, at or before closing.
Hazard Insurance Calc: Example: 300,000 X .0070 = 2,100 *Does not include flood
Prepaid Per Diem: Loan Amt X Interest Rate / 365 = Example 200,000 X .0425 = 8500 / 365 = 23.29 per day Note: Interest is collected in arrears. You'll pay per diem interest from the day you close until the end of the month. Then, your next payment will be due on the first of the following month. Example Closing June 25th = 5 days per diem (23.29 X 5 = 116.25.) 1st payment Aug 1.
Escrow Account: Taxes & Insurance
If an escrow account is required, since PITI is paid in arrears, mortgage cos collect 3.5 months of taxes , and an extra 2 mos of Hazard Insurance.
Calculation: Taxes Vary, but using 3% Annual is average if not in a MUD district, 3.35% if in a MUD district. Sales Price X .0030 is the calc (Example 300,000 X .03 = 9,000 annual / 12 mos = 750 mo. 750 X 3.5 mos = 2,625 Escrow for Taxes
Insurance Escrow: Total annual insurance 2100/12 = 175 X 2 mos = 350 for insurance escrow.
Origination Charges: Usually quoted as a percentage of the loan amount, or in some instances a fixed fee, OR, a combination of both. Example of a 1% origination fee on a 200,000 loan is 2000.
Clearly, these closing costs add up. Click on: Negotiating Cash at Close to learn what costs can be paid for by the seller, rolled into your rate via a Lender Credit, or omitted or waived by the lender.