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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
- 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 REALTOR�) 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). |