Wednesday, May 14, 2014

First Time Buyer? Be Prepared for Closing Costs

When you are financing a home purchase rather than paying cash, you need to be prepared to pay some initial fees aside from your first monthly mortgage payment.
If you are purchasing a newly built home, sometimes your builder will cover some of these costs as an incentive for buyers to purchase a home, finance it with a preferred lender and go to settlement with a preferred title company. Resale buyers are also sometimes able to negotiate with the sellers to pay some closing costs depending on local market conditions and the individual terms of the sale.
When you arrange your financing with a lender you should receive an explanation of anticipated closing costs and a Good Faith Estimate. You may even see more than one estimate before you go to settlement, where you will see the final version of the HUD-1 Settlement Statement, a federally mandated form for all mortgage borrowers regardless of whether you are refinancing or purchasing a home.
In general, the fees associated with a home purchase include closing costs, loan discount points and prepaid items.

Closing Costs
The amount you will pay in closing costs varies by location and typically costs between 2% and 3% of the loan amount. Closing costs are not calculated on a percentage basis, but instead are based on specific line items related to your loan application and lender fees.
Unless you have negotiated to have someone else pay these costs, they are your responsibility to pay at the settlement.
Some examples of closing costs include:
  • Loan origination fee
  • Credit report fee
  • Loan application fee
  • Title services fee and lender’s title insurance premium
  • Owner’s title insurance premium
  • Survey fee
  • Appraisal fee
  • Government recordation fees and transfer taxes
  • Attorney fees

Loan Discount Points
A discount point is equal to 1% of your loan amount. You may or may not have agreed to pay points for your loan in order to lower the interest rate. If you chose a loan with discount points, then you will pay the point or points at the closing.

Prepaid items
Most lenders require an escrow account to be established with your loan to cover your property taxes and homeowners insurance. Each of those bills will be estimated and then, as part of your monthly mortgage payment, you will pay a portion of those bills to your lender. When the insurance and tax bills come due your lender pays them for you.

Lenders prefer this method of paying those two bills because your home serves as collateral for your mortgage. If you end up with a tax lien for unpaid bills or you lack insurance to make repairs or to replace your home if it’s destroyed, then the lender loses part or all of the collateral.

On settlement day, lenders require you to pay into your escrow account a sum to cover part of your property taxes and homeowners insurance. In addition, you will need to pay for your first year of homeowners insurance in full.

Depending on the day of your closing, you will also need to make a prorated payment for interest on your mortgage from the closing date until the end of the month. You may also be responsible for a prorated condominium fee or homeowners association fee.

The federal government has revised the HUD-1 Settlement Statement multiple times and has made a Good Faith Estimate mandatory. If you have any questions or concerns about any fees you are expected to pay at your closing, you should consult your lender, your title company and your REALTOR® for an explanation.

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Tuesday, May 13, 2014

Don't Forget These Costs When Buying a Home

You’ve crunched the mortgage calculators, estimated your tax payments, and taken a realistic look at how much house you can afford. You’ve stuck within your range when scouring the® listings, being careful not to bust your budget.
But there are more expenses involved in home buying than just the property costs. And those additional payments, if you don’t factor them in, can be high enough to derail your conscientious planning.
home buying costsHere’s what to keep in mind:

Buying Costs
You’ve got your mortgage pre-approved, but that’s not all you will need to fork over to get the keys to your new place. Services that need paying:
  • Your buyer’s agent fee
  • An appraisal to confirm a reasonable market price for the property
  • Inspections of structural, mechanical, pest or other potential issues
  • A real estate attorney to review all contracts (depending on the state)
Property taxes vary widely, up to 4.2% of a home’s value in some states, according to a CNN map published in 2013. Depending on when you buy, you may owe the previous owners for property taxes they have already paid. You may also need to pay fees to a local association, such as a condo homeowner’s association.

Moving Costs
Moving into a home can involve major expenses for packing, storing and transporting your possessions and yourself. If you are moving across the country, the costs could be significant. Even moving across town can cost more than you planned for truck rental, movers and equipment.

Setting up your telephone, electricity, gas and water—did you budget for these expenses? They could cost more at your new place, especially if you’re moving to a larger home or from a rental.

New Stuff
You may need to purchase appliances or furniture for your new home. Some items, like your old particle board bookshelves, may not be worth the cost of moving. Again, if you are sizing up, you face the potentially fun, but possibly financially draining, challenge of filling the new place.

Maintenance and Renovations
Trees fall on roofs. Gutters need cleaning. Driveways need repair…. A standard rule of thumb is to budget at least 1% of your home’s purchase price each year for home maintenance costs.
Maintenance can include things such as painting, replacing roof shingles, fixing or upgrading plumbing and wiring. The amount you will need to pay for maintenance can depend on the age of the home, the previous owners’ upkeep and the climate.

Homeowner’s Insurance
You won’t be able to obtain a mortgage without homeowner’s insurance covering both the property and its contents. However, the standard insurance may not cover natural disasters such as floods, tornadoes and earthquakes. Depending on where you live, you may want to consider taking out additional insurance to cover such risks.

Private Mortgage Insurance and Title Insurance
If the down payment on your home was less than 20% of the purchase price, you will have to pay for Private Mortgage Insurance. PMI protects your lender in case you default. It’s standard, and fees vary. The rules are complicated, but usually once you have paid down the mortgage so you owe less than 78% of the purchase price, you can drop the PMI payments.
Title insurance offers protection for you (and your lender) if you later discover that someone else could lay claim to the title, and therefore ownership, of the house.
Even if you are lucky enough to avoid paying for PMI, you find a low-cost attorney you can trust, and you have a modern, energy-efficient house, these expenses can still add up to thousands of dollars. That prospect should not scare you away from homeownership, but it always helps to be prepared.