Understanding closing costs
You will probably have expenses in three different categories: government-imposed closing costs; mortgage-related closing costs; and buyer costs to the seller.
Mortgage-related costs paid at closing may include: loan origination fee, loan discount points, mortgage insurance, appraisal fee, prepaid interest, escrow accounts, credit report fee.
Any special agreements you've made with the seller regarding your costs versus his or hers should be specified clearly in the sales contract.
After your closing
Congratulations! You are now a homeowner, and you'll want to do everything in your power to protect your investment.
By maintaining or even enhancing the appearance of your home and making sure that necessary repairs are made, you could be increasing your home's value. You'll want to keep your finances in shape as well, so you can make timely payments and let your home's equity begin to work for you.
Remember that late mortgage payments can impact your credit rating. If you are consistently late, you could even lose your home. Nothing's worth that! If you get into a financial bind and fear you will have difficulty making your payment on time, contact your lender immediately.
If you consistently fail to make timely mortgage payments, you could lose your home and the good credit you've worked to maintain. Contact your lender at the first sign if you are having trouble making your payments.
You can potentially increase the value of your home by keeping up with repairs, and maintaining and enhancing the condition and appearance of your home.
Choosing a mortgage
There are several different types of mortgages, among them:
- Fixed-Rate Mortgages - These are the most popular type, and offer an interest rate that remains constant for the duration of the loan.
- Adjustable-Rate Mortgages (ARMs) - These come with an interest rate that will adjust from time to time to keep pace with changing market rates.
- Low and No Down Payment options - These may waive the down payment requirement entirely, or require as little as three percent, for borrowers with good credit.
- Special Financing Mortgages - Some programs are created for people in certain occupations, such as police officers or public school teachers. Others seek to assist those with low or moderate incomes, disabilities, etc. See the Home Program section of this website for a list of programs available in your area.
Importance of getting an inspection
Hire a professional to do a inspection hat includes everything from plumbing and electrical systems to heating and cooling. If the inspection identifies problems, the seller may be willing to adjust the contract terms or purchase price in anticipation of your future repair costs. If problems appear to be severe, you may decide not the purchase the home after all.If you do back out of the purchase, be aware that you may have to sacrifice up-front costs, including your credit report fee and loan application fee.
A home warranty may usually be purchased prior to closing, but paid for during the closing process. Occasionally warranties are provided by the seller or can be negotiated with the offer to purchase. Home warranties typically cover the mechanical components of your new home for a full year after purchase. The home warranty can help provide the comfort that you won't be facing bill expenses for heating, cooling, water heater replacement, etc. right after you move in. Ask your real estate professional about obtaining a home warranty and the full advantages.
Your REALTOR® will advise you of the seller's response after you've made an offer. The seller may accept your offer, reject it, or make a counteroffer.
If your offer is rejected, you will need to decide if you can, and wish to, make a higher offer. If the seller makes a counteroffer, you will need to make the same determination. Can you afford the new price? Will you need additional mortgage financing?
Other negotiations among the seller, yourself and your REALTOR® may also take place. Before making a counteroffer of your own, or agreeing to go ahead with the purchase, be sure to carefully examine every aspect of the counteroffer before you.
Your offer to purchase
Working with Prospera Realty we will prepare a purchase and sale agreement when you are prepared to make an offer on a house. He or she will then present that agreement to the home's seller.
The purchase and sale agreement includes many things, among them:
- The type of financing you are seeking
- The price you are offering to pay
- The amount of your down payment
- The mortgage amount, including the maximum interest rate you're willing to pay
- The amount of earnest money
- A legal description of the property
- The closing date
- The occupancy date
- Personal property to be conveyed in the home
- Expiration date for your offer
Your purchase and sale agreement may also include contingencies, requiring a specific action to take place before the contract goes into effect. Your REALTOR® will help you determine if contingencies are in order in your specific case; some common contingencies include home repairs, environmental concerns, home inspection and appraisals.
Getting pre-qualified for a loan
Pre-qualification for a loan can help you concentrate on a specific price range, and save you time so you won't be looking at properties well over what you can afford to purchase. Pre-qualification is essentially an estimate of how much you can afford to spend on a house. You would typically take the step of getting pre-qualified sometime before you begin your search, and before your actual loan application meeting.
An additional step you may take is to get pre-approval for a mortgage loan. That means that your loan application has actually been processed by a lender, and a specific mortgage amount has been approved for you. Some buyers feel they have more negotiating power when they can provide this pre-approval proof to the seller. As with pre-qualification, lenders will use established guidelines to determine the size of your loan approval.
How much can I afford ?
Determining your ability to comfortably pay monthly mortgage payments is something for which lenders will use established guidelines. A general rule is that a household's mortgage payment should not exceed 36 percent of its income on all its debt, which includes the monthly mortgage payment; and that the mortgage itself should not exceed 28 percent of the household income.
Remember, if you are purchasing a home with a spouse or other partner, you can include that person's income (and, of course, consider his or her debts) when computing the cost of the home you can afford.