The amount of money that you will have to come up with to buy a home depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs:</p>
<p><strong>• </strong>Earnest Money: the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house</p>
<p><strong>• </strong>Down Payment: a percentage of the cost of the home that you must pay when you go to the closing and</p>
<p><strong>• </strong>Closing Costs: the costs associated with processing the paperwork to buy a house</p>
<p>When you make an offer on a home, your real estate broker will put your earnest money into an escrow account. If the offer is accepted, your earnest money will be applied to the down payment or closing costs. If your offer is not accepted, your money will be returned to you. The amount of your earnest money varies. If you buy a HUD home, for example, your earnest money deposit generally will range from $500 &#8211; $2,000.</p>
<p>The more money you can put into your down payment, the lower your mortgage payments will be. Some types of loans require 10-20 percent of the purchase price. That’s why many first-time home buyers turn to the FHA for help. FHA loans require only 3 percent down &#8211; and sometimes less.</p>
<p>Closing costs, which you will pay at closing, generally average 3 to 4 percent of the price of your home. These costs cover various fees that your lender charges and other processing expenses. When you apply for your loan, your lender will give you an estimate of the closing costs, so you won’t be caught by surprise. If you buy a HUD home, HUD may pay many of your closing costs.</p>
<p>The savings and cash you currently have available can be used to support your up- front payments such as the closing costs and down payment for your home. Consider what savings and cash you will have left after paying your up-front costs to support non-housing-related expenses and emergencies (i.e. unexpected car repairs, credit card payments, car loans). Most lenders prefer that homeowners have three months of living expenses available after closing on the loan. The up-front cash requirements include:</p>
<p><strong>Closing Costs</strong>: You need to pay these up-front costs when you close on your home. Closing costs generally depend on the location of the house and the type of loan program. There are opportunities to negotiate closing cost expenses with the seller and lender. Furthermore, there are opportunities to finance some portion of the closing costs as part of the loan amount. Some typical closing costs are:</p>
<p><strong>• </strong>Fees paid to the lender<br />
<strong>• </strong>Fees paid in advance<br />
<strong>• </strong>Other charges<br />
<strong>• </strong>Origination fee <strong><br />
• </strong>Discount points<br />
<strong>• </strong>Credit report fee<br />
<strong>• </strong>Appraisal fee<br />
<strong>• </strong>Assumption fee if loan is assumed<br />
<strong>• </strong>Interest from the closing date to the beginning of the 1st payment<br />
<strong>• </strong>Hazard insurance premium<br />
<strong>• </strong>Mortgage insurance premium<br />
<strong>• </strong>Title search and title insurance<br />
<strong>• </strong>Sales commissions<br />
<strong>• </strong>Legal and recording fees<br />
<strong>• </strong>Inspection and survey fees<br />
<strong>• </strong>Property taxes and other adjustments<br />
<strong>• </strong>Processing and document preparation fees</p>
<p><strong>Down Payment:</strong> This percentage of the sales price must be paid up-front and can vary by lender, location, and loan program. A higher down payment generally translates into lower loan interest rate requirements. While conventional loan down payments may be close to 20 percent of the sales price, government loans typically have lower down payment requirements. This allows potential home buyers who normally can not meet down payment requirements an opportunity to qualify for a mortgage. Keep in mind that down payments less than 20 percent of the sales price typically require mortgage insurance payments.</p>
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Using a real estate agent or broker is often a very good idea. All the details involved in home buying, particularly the financial ones, can be mind-boggling. A good real estate professional can guide you through the entire process and make the experience much easier.
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A real estate broker will be well-acquainted with all the important things you’ll want to know about a neighborhood you may be considering: the quality of schools, the number of children in the area, the safety of the neighborhood, traffic volume, and more. He or she will help you figure the price range you can afford and will search the classified ads and multiple listing services for homes you’ll want to see. With immediate access to homes as soon as they’re put on the market, the broker can save you hours of wasted driving-around time. When it’s time to make an offer on a home, the broker can point out ways to structure your deal to save you money. He or she will explain the advantages and disadvantages of different types of mortgages, guide you through the paperwork, and be there to hold your hand and answer last-minute questions when you sign the final papers at closing. Generally, the broker or agent’s payment comes from the home seller - not from the buyer.
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You may also consider using a lawyer for your closing or to help with the complex paperwork and legal contracts. A lawyer can review contracts, make you aware of special considerations, and assist you with the closing process. Your real estate agent may be able to recommend a lawyer. If not, shop around. Find out what services are provided for what fee, and whether the attorney is experienced at representing home-buyers. **