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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; and the big
one
-
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).
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