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Recurring and Nonrecurring Costs; Estimating the Total for Credits

Recurring and Nonrecurring Costs; Estimating the Total for CreditsA few readers had questions yesterday about recurring and nonrecurring closing costs. Note: I was using the term “reoccurring” yesterday but according to the internet, “recurring” is the more correct term, even though the meaning is very similar.

Nonrecurring closing costs include the one-time fees that buyers pay only at the time of purchase. These costs include the escrow fee, the title insurance, the appraisal fee, the underwriting fee, the notary fee, the recording fee, and the transfer taxes, among other things. These fees can range from $4,000 to $20,000 (or more) for a purchase with no discount points or origination fees, depending on the size of the purchase and the amount of transfer taxes.

Recurring closing costs include any costs that recur after the purchase closes. These costs include prepaid interest, property taxes, hazard insurance, and HOA dues. Recurring costs are significantly larger if there is an “impound account” b/c lenders will collect four to ten months of property taxes and up to fourteen months of hazard insurance up front to fund the impound account.

We mentioned yesterday that sellers and lenders can provide credits to cover closing costs, but the credits cannot exceed closing costs. When estimating closing costs, it is important to note whether or not there is an impound account or transfer taxes.

For a $600,000 purchase with no impound account or transfer taxes, the total closing costs (recurring and nonrecurring) can be as low as $8,000.

For a $600,000 purchase with an impound account and significant transfer taxes (in a City like Oakland) the closing costs could be as high as $20,000.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167