Home prices and the type of mortgage you get factor into how much you need to buy a home. But a typical home purchase has three main costs a deposit, a down payment and the closing fees.
The deposit or earnest money tells the seller that you’re a serious buyer. When you submit your offer on the home, the real estate agent will take the deposit and put the money into an escrow account. If the seller accepts the offer, the deposit will be applied to your down payment. If the offer is rejected, the deposit should be returned to you.
The next cost is a down payment, a percentage of the price of the home that you fund directly. Some loans require a down payment to be 10% or 20% of the purchase price. And many programs allow qualified buyers to put as little as 0% or 3% or5%, so ask your lender about the various options. But the more you put down initially, the lower your monthly payments, so it is important to determine what you can afford.
To determine what you can afford, most lenders look at your ratio of debt to income. Today’s automated underwriting systems suggest monthly mortgage payments should not exceed 36% to 65% of monthly income.
Credit also can dramatically impact your mortgage options and down payment. So talk to a loan officer about how to improve your credit score before getting a mortgage, and ask them to run a credit report.
Closing costs cover various transaction, paperwork and processing charges incurred by the lender during the sale. These can include appraisal fees, title search and recording fees. Paid when the transaction is settled, closing fees average 1% to 4% of the price of the home.
During the closing, the buyer meets with a closing agent or escrow office, who explains and reviews a large stack of closing papers with the seller.
Take the time to read each document and understand exactly what it is before you sign. And before you leave, make sure you have copies of all the documents you signed to review at home.
Since closing costs are usually disclosed by the lender upfront, there shouldn’t be any surprises. But you might ask your real estate agent to join you for this meeting to make sure all your interests have been addressed as you review and sign the purchase documents.
In addition to initial costs, remember to factor some long-term expenses such as monthly utilities, homeowner’s insurance, association or condo association dues and property taxes. Taxes and insurance fees can be escrowed or rolled into your mortgage payments, but to get a clear picture of what that new home will cost in the first year, ask your broker to break down those costs in advance.
If you have questions about financing a home, HomeLoan123.com is ready to help.
Keeping you informed.
Doctor Mortgage
To ask HomeLoan123.com’s Doctor Mortgage a question, e-mail: info@homeloan123.com
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