When buying a home, especially if it’s your first, you need to understand all the costs that go into making this extremely important purchase. What are the costs that you have to pay at closing?
There are one-time costs that you will have to pay at the closing time and others that are integrated into your monthly mortgage payment. Often you have the option of choosing either of these, but the advantages or disadvantages to this depend greatly on current interest rates.
Locking in Mortgage Interest Rates
In today’s market there are many variables and the rates are always changing. You may speak to a lender and think you are getting one rate but when you come back a week later, they may give you a different quote.
One way to be sure that you get the quoted rate at closing is by formally locking in the rate. This will guarantee that you receive the rate you were quoted when you go to sign the mortgage papers. If requested, lenders will lock-in for 15, 30 or more.
However, lenders charge fees for lock-ins longer than 30 days. The common fee is a quarter point for each additional 30 days although fees vary. If you believe that the interest rates are likely to go down, you may not want to do this as you may be able to get a better rate at closing.
What Lenders Mean when They Talk About Points
It is a fee that you pay at closing that helps you to lower the interest rate over the life of the loan. One point is equal to one percentage point of the total amount of the loan. In order to calculate how much lower your monthly payment will be you need to find out how many points it will take in order to lower your interest rate.
Then calculate what the difference in your monthly payment will be. Doing this makes sense if you are planning on living in your home for more than five years. If you think you live there a shorter period of time, the up-front cost will be more than what you will save.
Consider the Fees Involved when Purchasing a New Home
There are many fees related to purchasing a home. The mortgage lender requires these fees. Different lenders have different requirements. One they all require for closing is a home appraisal; they want to make sure that your house is worth at least the amount they are loaning you.
This is important to you as well; as you want to be sure that your new home is worth what you are paying. Other services with fees are home inspections, land surveys and title search (making sure there are no other liens on the property).
The competition in the lending interest is high, so some lenders offer reduced or no closing fees in order to get your business. Their loan may have a higher interest rate. If you need to lower you upfront costs this may be to your benefit.
If monthly costs are your concern, it might be to your advantage to pay some of those fees for a lower monthly payment. You need to shop around and ask questions to find the combination that suits your needs.
Finally, it is a good idea to meet with your tax consultant before you make this purchase.
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Home buyer closing costs can be paid by the seller on most loan programs. The seller can pay 3% or 6% of the home buyers closing costs depending on the program.
Get your finances in order. Review your credit report and be sure you have enough money to cover your down payment and closing costs. Then, talk to a lender and get prequalified for a mortgage.
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He or she will also be able to help you with many of the tasks involved with buying a home, such as scheduling a home inspection, negotiating with sellers, and setting up the closing meeting.
Advice To Home Buyers about Closing Costs
Advice To Home Buyers When It Comes To Closing Costs. Closing on your new home is an exciting time. Regardless of how you negotiated your purchase contract and the structure of your loan with your mortgage professional, it is important to understand the fees associated with your new loan.
