Closing Costs
On the day you actually buy your
new home, in addition to your down
payment and the prepaid property tax and homeowners
insurance premiums,
you'll need cash for various fees associated with the purchase.
These expenses are known as closing
costs and are paid by both buyers and sellers.
Some closing costs you pay up-front when
you apply for a mortgage loan. That includes money for
a credit check on
all applicants and an appraisal on the property. Keep
in mind that even if you don't eventually receive the
loan, that money is not refundable.
Other closing costs are possible and should
be considered when evaluating your financial situation.
These may include, but are not limited to:
- Title insurance fee;
- Survey charge;
- Loan origination fee;
- Attorney fees or escrow fees;
- Document preparation fee;
- Garbage or trash collection fees; and
the big one
- Points - up-front interest paid in
return for a lower interest rate. Each point is one
percent of the loan amount. Sometimes you can contract
for the seller to pay your points.
NOTE: Consider closing
costs when choosing one mortgage plan over another.
The good news is that if your cash is limited,
some mortgage plans allow the seller to pay some or all
of your closing costs, such as title insurance, escrow
fees, and points. Certain closing costs can sometimes
be added to the amount of mortgage loan you're receiving.
Figuring Out Your Monthly Income
When you apply for a home loan (and even
long before that, when you first speak to a REALTORŪ)
the first question may likely be "How
much is your income?" In making this determination,
lenders consider the income of all
parties who will be owners of the property.
Be prepared to provide a monthly accounting of all sources
of income.
Figuring Out Your Monthly
Debt
Lenders are interested mainly in your
present monthly payments
because they want to be sure you can handle the mortgage
payment you'll be applying for. Different mortgage plans
consider payments on any debt that won't be paid off within,
for example, six months, nine months, or a year.
Amount of Your Down Payment
Your down payment is paid
in cash and is not included as part of the loan amount.
The bigger your initial down payment, the smaller your
loan, which reduces the amount of your payments.
How much you'll put down depends on the
cash you have available and the amounts you'll need for
closing costs and prepaid property taxes and homeowners'
insurance.
Mortgage plans have various down payment
requirements and they can range from 0% down on a VA
– Veterans Administration Loan - to between
3 and 5% down on a FHA –
Federal Housing Administration Loan - to 20%
down, the traditional amount for a conventional loan.
In addition, special state programs for first-time home
buyers may set different sums, which are usually lower
than conventional financing.
If you put less than 20% down on most
loans, you'll be asked to protect the lender by carrying
private mortgage insurance (PMI).
Carrying PMI ensures that the debt is repaid if you default
on the loan. This adds approximately an extra half a percent
onto the loan.
FHA mortgages, in return for their low-down-payment
requirements, also charge for mortgage
insurance premiums (MIP).
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