Like most things in life, when you purchase a home, there are a number of costs aside from the actual cost of the home that must be taken into account. These can quickly add up and it is common for a person to spend several thousand dollars in closing costs.
Closing costs are the things that one must pay before taking ownership of a home. This includes things like attorney fees, title searches, and loan origination fees. A lot of people don’t realize it, but when you purchase a home, in addition to the down payment, it is common to spend between $2000 and $4000 in closing costs.
Since closing costs can add up so quickly, it is very important to take each cost line by line and determine if it is necessary and if there is anything you can do to mitigate it. Your lender and real estate agent should be able to provide you with estimates of closing costs before the actual closing day, so that you should not wait until the day of closing to question each cost.
There are many costs, which are simply part of buying a house. For example, you will need to hire a lawyer to prepare the paperwork and a legal assistant will need to be on hand during the signing of the contract. Other costs, such as a title search or a home appraisal are also par for the course.
However, it is also common for junk fees to be included with the loan, which are often negotiable. For example, often a lawyer may include a very high charge for sending the contract by courier. This is often unnecessary or highly inflated, so it should always be questioned. The lender themselves will also often add on a number of junk fees, such as extra points or certain loan fees, so each and every charge from the lender should be questioned.
For non-junk fees, such as lawyer costs, even though they are required, it is often possible to get a better deal simply by asking or doing a little calling around. So, once you have received an estimate of the costs, ask your real estate agent if you can get it any lower and if they can not help you, do a little calling around to real estate lawyers to see if you can find a better deal. In most cases, you can use your own lawyer, so it may be possible to save several hundred dollars. However, in certain cases, such as when buying a bank owned or foreclosed property, you may not have as much freedom when it comes to choosing your lawyer.
Closing costs add up very quickly and it is common for loan originators and lawyers to include a number of junk fees, so it is important to carefully examine and question all costs before going to your closing meeting. This can often save hundreds of dollars.
Buying a home is a very big investment and most people use a mortgage, which is a special type of loan, because they do not have the money available to buy a home upfront. Since purchasing a home is such a large investment, and in some cases the biggest of a persons lifetime, it is important to get the best deal on your mortgage. There are many factors that go into evaluating a mortgage and finding a good lender.
One of the most important considerations is the interest rate of the mortgage. The interest rate can vary, based off of the current market, as well as the credit of the person applying for the mortgage. It is essential to have an idea of what the normal interest rate is, so that you can better compare mortgage offers from various lenders.
It is important to understand that mortgage rates can vary on a daily, hourly, or even minute by minute basis. They are not set directly by the lender, but are instead a reflection of a number of factors, which are based heavily upon the current market and economic situation.
Since interest rates can vary frequently, the advertised interest rate is often not very accurate. It is simply not practical, affordable, or possible for a lender to update their advertised mortgage rate every time it changes, so there is no guarantee that you will get the same mortgage rate you see in the newspaper or even online.
In many cases, this is simply a reflection of how often the mortgage rate changes, but there are some dishonest mortgage lenders who purposely advertise a much lower interest rate than they actually offer. So, it is important to always look at advertised mortgage rates cautiously and when speaking with a lender, make sure to ask them how often their mortgage rates are changed.
When you actually apply for a mortgage, especially if there is an application fee, make sure to ask if the mortgage rate is guaranteed and for how long they will honor this guarantee.
While interest rates play a big role in the overall cost of a mortgage and the monthly payments, there are many other costs associated with a mortgage. The closing costs of a home can easily exceed $3000 and even more, depending on the cost of a home. So, it is very important to ask your mortgage lender about any fees and charges that will be associated with the mortgage.
Remember that there is almost never a situation where you will pay nothing in closing costs, so if this is offered by a mortgage lender, you should be very suspicious and make sure to ask them how they get paid and what other fees are associated with the mortgage. In almost all cases, you will find that the $0 closing costs are offset by a number of fees and other charges.
Points are one way that lenders get paid and represent a percent of the total cost of the home, which is paid up front. So, if a lender requires you to pay 1 point on a $100,000 home, you would have to pay them $1000, which is 1% of the total cost of the property. Often, by paying more points, you can get a better deal on your mortgage and lower interest rates, but it can also add up very fast.
It is important to ask about points and other fees like these and compare these fees among lenders, so you can have a better idea of who is really offering the best deal on a mortgage.
It used to be that when you bought a home, lenders required a 20% down payment. Over time, lenders began to relax this requirement, often because the higher your mortgage amount, the more they get paid over the course of the loan.
However, a lot of lenders require that you purchase Private Mortgage Insurance(PMI) if you are not going to have enough money for a 20% down payment. PMI guarantees that if the home goes into default, a portion of it will be covered by the insurance company.
Make sure to ask the mortgage lender whether Private Mortgage Insurance is required and how long it is needed. Often, it is only required until there is 20% equity in the home, but remember that they will not cancel it automatically and instead you must request that the lender cancel it when you reach this point.
It is important to explore all of your options, so you can get a good deal on your mortgage and so you have a basis for comparison to compare different mortgage offers. One of the best places to start is your current bank, as they will usually offer fairly standard interest rates and can usually give you an answer fairly quickly.
You bank also might not require any money towards an application fee, although all reputable lenders will provide you with a free estimate, without actually checking your credit or financial information. Even though they are not checking your information at this time, it is important to be honest, because when it comes time to actually apply for the loan, they will run your credit and check your references, so any dishonesty will be uncovered.
By starting with your bank, you will have an idea of what a standard interest rate is, as most banks do not offer subprime mortgages. This will give you a basis to compare other mortgage lenders and mortgage brokers, so you can get the best deal on your home loan.