You've decided to stop paying rent and enter the world of homeownership. For many, this is the single greatest financial investment of your life (except for marriage, but I digress). I'm sure you have friends and family who have told you all about the process, and you already know where you want to live. You've done your homework. But here's 5 things to know you have in addition to a mortgage when saving your pennies for the closing table.
You know about the down payment, and you know how much the furniture you're going to buy costs. But just to get a mortgage costs money. You'll also have some closing costs, paid to both the lender and title company. These can range from the lenders origination charge to any of the uniform costs title companies charge for doc recording fees with the county and state. As inventory remains low and multiple offers are prevalent, you might even offer to pay for a new survey and title policy to put more money in the sellers pockets and make your offer stronger. You may be able to have it negotiated in the contract to have the seller pay for a portion of your closing costs, but I would advise you be prepared to pay for all of your own costs. Now, while every lender has their different fees and closing costs, you should be able to get an estimated closing cost sheet from your lender before ever getting under contract. I work with some of the best lender around, and can refer you to a great one.
Property Taxes and Insurance
If you're not putting at least 20% down, you will be required to set up an escrow account to hold your property taxes and homeowners insurance. This account takes money from your lump monthly payment in order to pay the taxes towards the end of the year and your insurance on the anniversary date of your purchase. While it is built into the price of the mortgage, it does vary by home. You may also be required to have a reserve in the account to get started, which you will know in advance. I have referrals for great insurance people as well.
Private Mortgage Insurance
This is also added into your monthly mortgage if you're putting less than 20% down, or if you're using the First Time Home Buyer Program. It is in place to reimburse the lender in case a borrower defaults on their loan and cannot make payments. This will vary based on loan type, and is normally upwards of a couple hundred dollars. (Not required if you're using a VA loan)
While you're not required to get an inspection on the home, it is highly recommended. This is to be done during the Option Period of the contract, and repairs are to be negotiated afterwards. It's not a cost you can roll into a monthly payment, nor is it able to be recouped if you back out of the contract. It will also vary depending on the type of foundation the home has, if it has a pool, and other things. An appraisal will be ordered if the contract gets out of the option period, and is a lender cost. The appraiser will be making sure the home is actually worth at least what it is under contract for, and the lender will charge the buyer during the loan period. This can be close to $500.
Homeowners Association Dues
Not every home is in an HOA. Some people refuse to buy in one. Some are quite the opposite. If you do choose to live in an HOA, you will have dues. Some are annual, some are semi-annual, and some are monthly. It all depends on the property management company. You will know the costs associated with the HOA in advance before ever making an offer on the home.
Once you've started the home buying process, been approved by the lender, and are under contract, DO NOT open any new lines of credit, max out credit cards, or apply for any type of financing until AFTER everything is closed and funded, unless expressly suggested by the lender as a way to improve your credit. By doing so, you may ding your credit, which could lower your score and affect your interest rate. It could also prevent you from qualifying for the loan if your credit score is close to the line. Either way, DO NOT, I repeat DO NOT go out and buy all the furniture for your new home on a credit card before the home is closed on!
So if you're in the market to buy a home, Contact Me Today! I can help you get set up with mortgage and insurance people to make sure you're able to buy a home and have the best coverage.
You can also get a copy of my Home Buyers Handbook when buying to learn about the process!