How to Use a Closing Cost Worksheet

Any home purchase will require closing costs – those fees, interest, and taxes you pay at closing, aka settlement, to make that new home officially yours. (What the heck is a recording fee? We’ll let you know below!)

Your Mortgage Banker can provide you with a closing cost worksheet, which breaks down all these charges line by line so you can feel prepared, ask questions (please do!), and have a tool for negotiation. Let’s look at what closing costs are and how to use their worksheet. 

Why Closing Costs Are Required    

Closing costs usually cost around 2-6% of the loan amount and do not include your down payment. There are many ways to help cover them, including:  

• Negotiate with the seller to pay some of the closing costs. 

• Use gift funds. 

• Take advantage of a down payment/closing cost assistance program. 

• Roll your closing costs into the loan. 

But it’s still good to understand where that money goes – and why. You’re already taking on the monumental commitment of a mortgage (congratulations!). But “buying” a mortgage is like buying jeans or a great steak – the lender and outside parties (just like farmers, tailors, and chefs) work hard on its various parts to give you a quality product. Not only are you compensating them for their time and expertise, but these fees also protect you and the lender from making a bad investment.

For example, the appraisal demonstrates that the home you’re buying is truly worth its value. Neither you nor the lender wants to invest thousands into a home that a professional appraiser hasn’t evaluated. And settlement agents (aka, attorneys, title companies, and escrow companies) help ensure that you can legally buy the home. If someone else makes a claim later, you and the lender can face significant problems. 

That said, a few closing costs are optional, like a home inspection. While Atlantic Bay strongly recommends inspections on all homes except newly constructed properties under builder warranty, you can forgo that extra $300-500 if you’re willing to take that risk. 

Differences Between the Documents    

When you’re first pre-approved, you’ll receive a Loan Estimate (LE) that breaks down your loan’s general costs and terms. As closing approaches, your Closing Disclosure (CD) details all the final costs and may differ from the original Loan Estimate. This is because things may change throughout the loan process – you may negotiate certain fees, decide to use discount points, or shop different title companies.

Both the LE and the CD are required by law, but in between, the closing cost worksheet is an optional document that helps you understand the cash you’re really bringing to the closing table.  

Not All Closing Costs Are the Same 

Loans, properties, and borrowers are all different. Not everyone will need a foundation inspection or flood insurance. And while Department of Veterans Affairs (VA) loans require pest inspections, other loan programs do not. As your mortgage application is processed, your Mortgage Banker can provide a closing cost worksheet tailored to you.  

Standard Closing Cost Items 

Most lenders use a pretty similar version of a closing cost worksheet that we’ll detail below, but they can also provide a plain-language version that’s a little easier to follow. Nevertheless, the typical industry-wide worksheet gives you all the nitty-gritty and is worth a look. It’s usually one page separated into three sections:  

• Loan Costs (lender fees)  

• Other Costs (third party and prepaids)  

• Calculating Cash to Close (what you actually owe)  

It can seem intimidating, but remember, it’s a tool to help you!

There are many possible items that may or may not be a part of your unique loan. Here are how many of the standard charges appear, in sections labeled A-J:  

“Loan Costs”  

Part A: Origination Charges: These charges pay the lender to “write” or “originate” your loan and help toward their overhead like computers and employees.  

• Points: The cost of any discount points you pay to lower your rate. 

• Application/Processing/Underwriting Fees: Payments for processing and reviewing your application. 

• Rate Lock Fee: Some, not all, lenders charge a fee to lock in your interest rate between mortgage pre-approval and closing. 

• Origination Fee: Usually between 0.5% and 1.5% of the total loan amount, this is one of your larger fees and compensates the lender for working on your loan.  

• Mortgage Broker Fee: This fee is the same as an origination fee but charged by mortgage brokers, the companies that assist buyers in finding the right lender. You should only have one or the other.   

If you have a government-backed loan from the VA, Federal Housing Administration (FHA), or U.S. Department of Agriculture (USDA), “Loan Costs” is the section where their specific program fees would appear, such as the USDA upfront guarantee fee or VA funding fee.

Part B: Services You Cannot Shop For: These are third-party, unbiased items like appraisal fees and the company that runs your credit report.

Part C: Services You Can Shop For: This is usually a longer list of costs for services you choose yourself, such as title company (deed preparation, notary fee, title search, etc.), pest company, and surveyor.

Part D: Total Loan Costs: Here we pause to note the totals of creating your loan (A+B+C). Next, we move on to paying for and protecting the actual home structure.  

Other Costs  

Part E: Taxes and Other Government Fees: These are not your property taxes but fees you pay your local government for updating public records to show you are a homeowner (there’s that recording fee!)

Part F: Prepaids: As the name suggests, these are the interest, mortgage insurance (if applicable), one year of homeowners insurance, and property taxes you pay in advance to cover these critical expenses.

Part G: Initial Escrow Payment at Closing: On top of the upfront payments, your escrow is an additional cushion (typically two months) held in a special account that makes tax and insurance payments on your behalf as part of your regular mortgage payment.

Part H: Other: This section includes optional third-party costs that may or may not apply to you, such as home warranty and the owner’s title insurance.

Part I: Total Other Costs: Here, you’ll find the amount for officially establishing a safe new home as your own (E+F+G+H).

Part J: Total Closing Costs: You guessed it! Here we total Parts D and I for your full closing cost amount. Which brings us to… 

Calculating Estimated Cash to Close 

“Estimated Cash to Close” is the overall amount you could pay at the closing table after any earnest money, seller credits, lender credits, gift funds, or other items are subtracted. Knowing this estimate ahead of time helps you understand what you’ll need to pay, addresses any red flags, and lets you consider how you want to pay your closing costs.

While we’ve covered a lot, we will  go over every charge to make sure you have peace of mind with the homebuying process. Again, don’t be afraid to ask questions! Atlantic Bay is always here to help!