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How Do You Prepare For Closing
You’ve decided to jump, feet
first into the housing market eh? Well
you’ve made a good decision that will benefit you for years to come, but in
order to make it work you are going to need to come in with the most
information possible.
There are several short term
and long-term considerations that you have to take into account and in many
cases they will have a direct relationship on each other. Basically, the more you pay up front the
less you will pay in the long term.
One of your first ‘up front’
costs is the closing cost of your purchase.
Many new homebuyers often forget, or are unaware, of these costs, but they
can have a major effect on your home purchase.
Depending on what kind of
housing market you are going into you may pay different parts of your closing
costs. If you are buying in a buyers
market, it is quite possible that you can get the seller’s to contribute parts
of your closing costs. This is not to
say that they will give you money flat out, rather, they may pay some of your
initial costs and then add those costs on to the purchase price of the home.
This is a great way of
helping the sale go through, and ultimately they make the same money on the
home, and it helps you a great deal.
Most of your closing costs
will be spelled out in your Good Faith Estimate. To make sure that you are paying the least amount in closing
costs you should make sure that you get at least three different Estimates from
different lenders. Make them compete
for your business.
When you do get this
estimate, here are some examples of what you should be looking for.
Discount Points
Each point is equal to one percentage point of
the loan you are seeking. These points represent additional money that you
will pay the lender at the closing of your home. Often the more points
that you pay, the lower your mortgage rate will be.
For instance, of you are obtaining a 30-year loan,
for each extra point that you pay you will get a mortgage reduction of
around one eighth of a percent. So
if you are planning on living in the home for a long time, this can save
you a lot of money over a long period of time.
Origination Points
This is also known as an origination fee. This
is basically the fee you pay lenders to broker your loan. They are usually expressed as a
percentage. Therefore a loan
origination fee of one percent is equal to one percent of the amount
borrowed.
Application Fee
This is the fee that you pay the lender to
process the loan agreement.
Usually, this is not there to make a profit, but simply to cover
costs. Make sure this is a
reasonable amount. Also, if your loan does not go through, be prepared to
cover this cost yourself. So make
sure that you are not capricious when you applying for a loan. It could cost you dearly.
Appraisal Fee
The appraisal fee is usually a one time, fixed
cost that you pay (often the seller will pay) to determine the value of
the home. The fee is usually between $150 and $400. The appraisal will directly affect your
Dow payment for the home. If the
appraised value comes in way lower than the market value you will have to
pay more for the down payment.
Factors that come in to play when determining
the appraised value of the home are:
Present cash value
Use
Location
Replacement value of improvements
Condition
Income from property
Net proceeds if the property is sold
Credit Report
Again this is another one-time fixed cost that
you pay when you want to know what your credit rating actually is. You can obtain this information at any
of the three major (independent) credit bureaus in the United States.
Equifax
TransUnion
Experian
The cost of this is usually only $5 to $50.
Title Search
The title search is a detailed examination of
the history of your property.
Often these searches include an examination of, historical records,
deeds, court records, property and index names and a host of other documents.
The purpose of this is to ensure that the person
you are buying the home from, actually owns the home. It sounds funny, but it actually
happens more than you think that the current owner has unpaid debts, legal
issues that would all be transferred over to you if you purchased the
home. These could all negatively
affect the future marketability of the home as well.
For instance, the previous owner may not have
accurately stated their marital status.
The last thing you want is for an ex-wife or ex-husband of the
pervious owner to come knocking, thus laying claim to half of the home you
are now living in.
Other problems include: fraud, forgery,
defective deeds, mental incompetence, and confusion due to similar names
or clerical errors. Remember a certificate of title does not necessarily protect
you from these things.
Survey Fee
This basically lets you and your insurance
company and lender know what the boundaries of your property are. Depending on the size of your land and
what state you live in, this should cost you around $300.
Flood Certification
Costing around $30, this is in place to certify
that the home is not in flood plain. If it is, the lender will require
that you purchase a flood insurance policy.
Recording and Transfer
Charges
Again, this is a one time fixed cost that covers
the bureaucracy of buying a home.
This is the stamp on your mortgage that verifies that it is
legal. This often costs around
$75.
Interim Interest
This is the money that you pay the lender to
cover the balance of the months mortgage.
Because you pay your mortgage at the end of the month, this money
cover the remaining days in the month that you purchased your home. For instance, if you buy a home on the
15th of September, you’ll pay for the remaining 15 days, but
you won’t have to pay again until October 31st.
Attorney Fees
You will most likely get a lawyer to review your
mortgage. They usually charge
anywhere between $500 and $1500 to do so.
Providing they do this well, it is money well spent.
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