Most homebuyers understand the
concept of the down payment, but that is not the only upfront
expense when purchasing a home. In addition to the down payment,
money must be allotted for costs associated with the loan, which
can range from 3-7% depending on your lender and closing costs.
As the name implies, closing costs are paid at the time you close
the transaction, otherwise known as settlement. In addition to
closing costs, other costs to consider are the earnest deposit,
Private Mortgage Insurance or PMI as well any additional “hidden
costs”.
These costs include things such as
- Title insurance
- Loan origination fees
- Property survey
- Property inspections
- Appraisal
- Mortgage insurance
- Hazard insurance
- Inspections
- Retainer fee
- Credit report
When you submit your loan application, lenders
are REQUIRED to supply you with a good faith estimate of your
closing costs. The good faith estimate will give you a good estimate
of what funds you will need to bring to the closing.
The Earnest deposit is the money that the buyer
is required to deposit with the seller when initially making an
offer. If the offer is accepted, the money is then credited towards
the down payment. This amount is typically $500.00. If your offer
is not accepted the money is returned to you. It is written to
your Agent’s company and deposited into an escrow account.
Private Mortgage Insurance—If
your down payment is less than 20% of the purchase price, your
lender will require that you carry PMI. This insurance protects
the lender in case of loan default and usually involves an upfront
payment at closing, as well as a monthly premium. However, once
you have paid off 20% of the loan you can request that the policy
be canceled.
There are “hidden costs” that apply
to moving in general. For instance, you may need to purchase major
appliances, make repairs required by FHA, paint, or rent a moving
truck. Remember to save for these small costs.
Down payment + Closing costs + Earnest
deposit + Hidden costs = $$$!!!
Once all of these costs are added up, you may become discouraged
that you don’t have the necessary funds to purchase the
home you want. Don’t get discouraged yet, there are a few
options to help you with these costs.
In addition to negotiating sales price, buyers
and sellers frequently include closing costs in their negotiations.
It is not uncommon for a buyer to agree to pay full asking price
for the home and ask the seller to pay for their closing costs.
Another option may be for the buyer to ask
over full price and to include their closing costs into their
mortgage cost
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