Here are some common questions about costs involved in buying
property:
purchase
price. If you go for 100% financing you may get this money back at the
closing. If your offer is accepted, the earnest money becomes part of your
down payment or closing costs. If the offer is rejected, your money is returned
to you. If you back out of a deal, you may forfeit the entire amount.
2. Down payment is a
You can save yourself a lot of wheel-spinning if
you take a minute to figure out how much mortgage you can afford. Generally, a
lender will want your monthly mortgage payment to total no more than 29% of your
monthly gross income (that's your monthly income before taxes and other paycheck
deductions are taken out.) You also need to consider current loan interest
rates. The lower the interest rate, the more expensive the home you'll be able
to afford. It doesn't cost you anything to get pre-approved.
There may be an application fee involved when you apply for a mortgage
once you have found the property you want and you have a 'Purchase and Sale'
contract on it. Ask your bank or mortgage company if they have an
application fee and how much it is.
Well, that depends on a number of factors, including
the cost of the house and the type of mortgage you get. In general, you need to
come up with enough money to cover three costs:
1. Earnest money is the
deposit you make on the home when you submit your offer, to prove to the seller
that you are serious about wanting to buy the house. It must be substantial
enough to demonstrate good faith and is usually between 1-5% of the
percentage
of the cost of the home that you must pay when you sign a 'Purchase and
Sales' agreement. There are mortgage
options now available that require no down payment, but the
larger the down payment, the less you have to borrow, and the more equity you'll
have. Mortgages with less than a 20% down payment generally require
a mortgage insurance policy to secure the loan, this is known as PMI ask
your bank or mortgage broker if you will have this and how much it will be
monthly. PMI stands for Private Mortgage Insurance or Insurer. These are
privately-owned companies that provide mortgage insurance. When
considering the size of your down payment, consider that you'll also need
money for closing costs, moving expenses, and - possibly -repairs and
decorating.
3. Closing Costs
average
3-4% of
the price of your home. These costs cover various fees your lender charges
and other processing expenses. When you apply for your loan, your lender will
give you an estimate of the closing costs, so you won't be caught by
surprise.
There may be closing cost customary or unique to
a certain locality, but closing cost are usually made up of the following:
 | Attorney's or escrow fees (Yours and your
lender's if applicable) |
| Property taxes (to cover tax period to
date) |
| Interest (paid from date of closing to 30
days before first monthly payment) |
| Loan Origination fee (covers lenders
administrative cost) |
| Recording fees |
| Survey fee |
| First premium of mortgage Insurance (if
applicable) |
| Title Insurance (yours and lender's) |
| Loan discount points |
| First payment to escrow account for future
real estate taxes and insurance |
| Paid receipt for homeowner's insurance
policy (and fire and flood insurance if applicable) |
| Any documentation preparation fees |
When you make an offer on a home your offer will
be contingent on a home inspection, conducted by an independent authorized
inspector of your choosing. You will have to pay for this inspection yourself,
but it could keep you from buying a house that will cost you far more in
repairs, down the road. These can cost anywhere from $150 to $1000
depending on who you hire and what you have inspected. If you are satisfied
with the results of the inspection, then your offer can proceed. If you aren't,
you may want to negotiate, asking the seller to pay for certain repairs or
asking for a lower price.
Your lender will require you to get an appraisal of the house you want to buy,
to make sure it's worth the money that you're borrowing. Your bank or mortgage
company will select their own appraiser. You may be required to pay
this at the time the appraiser goes out to view the property or it may be
included in your closing costs. Again this fee could be anywhere from
$250 to $1000 depending on who they hire and what type of property it is.
Lenders require that you have homeowners
insurance, to protect both your interests and theirs. This will have to be paid
by you before the day of closing, and you will need to come to the closing with
an insurance binder that has been paid for the first year. Like everything
else, be sure to shop around for the best prices for insurance that fits
your needs.
Don't forget you'll have your monthly utilities.
If your utilities have been covered in your rent, this may be new for you. Your
real estate broker will be able to help you get information from the seller on
how much utilities normally cost. In addition, you might have association
dues. You'll definitely have property taxes. Taxes normally are
rolled into your mortgage payment. Again, your broker will be able to help you
anticipate these costs.
Most loans have 5 parts:
principal:
the repayment of the amount you actually borrowed; interest: payment to
the lender for the money you've borrowed; homeowners insurance: a monthly
amount to insure the property against loss from fire, smoke, theft, and other
hazards required by most lenders; and property taxes: the annual
city/county taxes assessed on your property, divided by the number of mortgage
payments you make in a year. PMI : Private Mortgage Insurance if your
down payment was less than 20%. Most loans are for 30 years, although 15
year loans are available, too. During the life of the loan, you'll pay far more
in interest than you will in principal - sometimes two or three times more!
Because of the way loans are structured, in the first years you'll be paying
mostly interest in your monthly payments. In the final years, you'll be paying
mostly principal.
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