First, let me start by saying you do not need a 20% down payment to buy your first home! Many of you reading this might be saying “I know that”, but I meet many people who don’t own a home because they still believe that to be true. There are loan programs for as little as zero down payment. Not everyone will qualify for those, but with no special qualifying and mediocre credit, you can usually get by with a down payment of only 3.5% of the price of the home.
Of course, shopping for a home can leave you feeling like you have been on a roller-coaster ride. Even though you’ll eventually find the right one, you may also find yourself cutting it close on cash if you didn’t properly prepare financially. So, it’s time for your pre-purchase checklist of places you may be spending money.
What It Costs to Close
Home sellers find closing is a fairly simple process, and most of the time they walk away with a check in hand. However, for buyers, closing can involve a myriad of expenses. I find that it’s much easier to deal with if you’re totally ready for everything that’s going to go into that transaction. And there’s a lot more to paying for your new home than just coming up with the down payment. If you’re like most borrowers, to cover additional expenses on the big day, you can expect to add an additional three to six percent on top of the down payment.
These costs include, but aren’t limited to:
- Loan-related fees. The lender you are using should have already disclosed the fees they collect in order to actually create your home loan. If you haven’t talked to a lender yet, you may be surprised at some of the fees that are charged to take your loan from a little dream to a big investment in your future. An application fee is sometimes required to begin the process, as it covers the costs of things like your credit report and the initial loan processing. Other fees include, loan origination fees, discount points, mortgage broker fees and appraisal fees. All of this can really add up!
- Real estate-related expenses. There are other fees related to your loan that may or may not have been covered. These include home inspections, as well as any repairs you’ve chosen to pay for at closing (in a sellers’ market, the seller is not always willing to pay for repairs).
- Prepaid expenses. Because items like your taxes and homeowner’s insurance are generally paid out of an escrow (or impound) account, you’ll have to put some money into it at the get-go to kick things off. The actual initial deposits will depend on where you live, but count on at least two months, if not a full year, of each being collected to establish that account. If you have mortgage insurance, the same would also apply. You’ll also typically pay the 1st 2 months of any homeowner’s association dues. And you’ll prepay interest from closing day until the day your first payment is due. There is some good news here though, you will not have your first mortgage payment due for more than a month after you close… so if you closed on May 15th, the 1st payment is due on July 1st, not June 1st, which does help a little.
- Title-related fees. Although it would be wonderful to live in a world where you could trust that a seller was absolutely, without question, capable of guaranteeing you could buy and own their home without complications, that world doesn’t really exist. But that’s what title searches and title insurance do. Title and escrow fees are paid to ensure that you will be able to buy a house without anyone else having a legal claim to it later. Imagine if someone claiming to be the owners brother showed up after 5 years and wanted to try to prove that the house was rightfully his! That would complicate your ownership considerably. Fortunately, before a bank will loan you money, they want to know that a home has a clear title. Title searches track all the people who have owned the property before, and title insurance protects against any problems that might have accumulated on the title over time.
Today is a great day to get connected with an experienced mortgage lender who can explain the fees involved in closing a loan for your specific situation. If you need a lender just ask me, I have worked with some amazing lenders over the years and have developed deep relationships.
Do you have a need for commercial / industrial / retail buildings or land? Are you ready to buy or sell a home? We can help you with that, safely… just call us at 702 SELL NOW or click on this link to my website http://www.702SellNow.com
Choose to have an amazing day…. Jeff