Breaking Down Closing Costs Like a Pro

Watch the YouTube video if you're a visual learner

Know the Numbers. Close Confidently.

Let's face it. Closing costs and loan estimates can feel like a foreign language. But once you understand the key players in this paperwork party, you'll go from confused to confident.

• The four numbers that actually matter on your Loan Estimate.
• The must-know sections of your closing costs.
• How to calculate your real cash to close without the headaches.

Let's simplify the chaos.

PS - Think of the Loan Estimate as your home loan cheat sheet. When you get an offer accepted all lenders will have to use the Loan Estimate.

The 4 Numbers That Actually Matter on Your Loan Estimate

These are the four numbers that deserve your attention. Have you heard of the 80/20 Rule? These 4 Numbers will get you 80% of the info in 20% of the time.

1. Loan Amount

This is how much you're actually borrowing.
Simple math: Purchase price minus your down payment.
Caution: If it's an FHA or VA loan, expect some added fees (mortgage insurance premium or funding fee).

2. Interest Rate

This one's obvious but critical.
Check if it's a fixed, adjustable, or if you’re doing a temporary buydown (hint: your Loan Estimate shows your final rate, not the buydown rate).

3. Monthly Payment 

Heads up! your Loan Estimate shows two monthly payment numbers.

• Lower Number: you’ll see the base monthly payment. This is Principal and Interest only (P&I).

• Higher Number: you'll see a more complete number that includes Principal, Interest, Taxes, and Insurance (PITI).

PRO TIP: If your new home is in an HOA community, that HOA fee is not included in either number. Simply add it to the higher number

4. Cash to Close

Translation: What’s the remaining balance you’ll wire to close the deal?
Pro Tip: Subtract any deposits or credits already applied.
You’ll know exactly how much more you need to bring to the closing table.

Closing Costs: Unpacking the Sections Without the Jargon

Let's demystify that closing cost page into human speak. Below will be screenshots of the loan estimate directly from the consumer Financial Protection Bureau.

Section A: Origination or Lender Costs

Example of Section A

Think of this as your lender's fees (processing, underwriting) and any discount points if you're paying to lower your rate.

PS - This is materially going to be the only difference between lenders. I've seen some very sneaky tactics where some will make Section C, E, F and G really low when you may not know this info upfront.

Section B: Due Diligence Costs

Example of Section B

This is your appraisal or HOA Lender Questionnaire zone.
It’s your peace-of-mind bucket. That you pay to make sure you’re buying a good home, not just any home.

Section C: Title & Escrow

Example of Section C

This is where the title and escrow company fees live.
Often chosen by the seller, but still on your side ensuring the property has clean ownership records.

(Section D simply adds up A, B and C)

Section E, F, G and H: The Rest of the Story

Example of Section E, F, G and H

• Transfer Taxes: yep, the tax man always gets paid. Some cities the seller pays for this, but this will all be laid out on your purchase contract.

• Prepaids: includes homeowners insurance (yes paid upfront) and prepaid interest (proration)

• Initial Escrow Account your piggy bank for future taxes & insurance

• Other Fees owner's title insurance, surveys, etc.

Bonus Tip on Prepaids

Homeowners Insurance Upfront:

You pay the first year of homeowners insurance before you get the keys like paying car insurance before you drive.

Why both?
You also add a little each month into a special piggy bank (escrow) so when the next year’s bill comes, the money is ready. It keeps you covered and avoids surprise bills later.

Prepaid Interest:

This is the interest you pay from the day you close until the end of the month.
Example: If you close on April 15, you pay interest for April 15–30.
Your first full payment starts in June.

Section I: The Grand Total

This is the math that brings it all together.
Your down payment + closing costs - credits - deposits = Cash to Close. Cash to Close is easier to understand if you translate to Total Out of Pocket.

Main Takeaway

Here’s your rapid-fire recap:

✅ Focus on the 4 numbers that actually matter on your Loan Estimate
✅ Know that lender fees live in Section A
✅ Expect Prepaids like homeowners insurance and prepaid interest are normal
✅ Remember your escrow piggy bank protects you from surprise tax and insurance bills later
✅ Always overestimate early, so your final numbers feel like a win, not a punch in the gut

This isn’t just about understanding paperwork. It’s about protecting your money, closing confidently, and staying in the driver’s seat from offer to keys.

Have questions or want to walk through your numbers together? Let’s do it.

Clarity creates confidence,
Nathan