Budgeting For Your Upfront Cost |
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THE N-SOURCER 7005 Shannon Willow Rd. Suite 100 704-535-4243 XT 7729 Budgeting For Your Upfront Cost When Purchasing Your New Home You should get your finances order before you shop for your home. Your down payment should be part of an overall program also, you should take the time to gather up financial records, examine your spending habits, and setting a budget you can stick with. You will have other upfront expenses; you should set an allowance for closing costs, which will include pre-paid expenses. The down payment is usually as a percentage of the overall purchase price of the home and it could vary depending on the lender, the type of financing and amount of money being lent. Typically your down payment would be 20% down for a conventional loan; however lenders have been willing to offer conventional financing with as little as 5% down. The Federal Housing Administration (FHA) and The Veterans Affairs (VA), also require minimal down payments ranging from 0% - 3.5%. If your down payment is less than 20% of the purchase price, lenders will require you to carry Private mortgage insurance (PMI), this insurance protects the lender in case of loan default, and usually involves an up-front payment at closing, as well as a monthly premium. However, once you have paid off 20% of the loan, you can request in writing the policy be canceled. U.S. Government loans will allow you to roll in your mortgage insurance Premium (MIP) or VA Funding Fee into the loan and possibly a monthly premium. Many lenders will allow you to use gift funds for the down payment, as well as for related closing costs. The gift may come from family or other sources. In addition, some lenders will also require you to pay at least a portion of the down payment with your own cash. It would be wise to check the requirements of your lender. Buyers are typically required to deposit earnest money with the seller when they make an offer. If the offer is accepted, the earnest money is then credited towards the down payment. You must be prepared to have funds earmarked for this purpose. The earnest money can vary from property or depending on the seller’s requirements. Please check with your Charlotte real estate agent for the required amount. You will also need to save for closing costs fees associated with the loan. These charges cover items such as title insurance, documentary stamps, loan origination fees, the survey, and attorney’s fees. When you submit your loan application, lenders are required to supply you with a good faith estimate your closing costs. I suggest you ask your lender to conduct a preliminary loan application to give you an idea of your costs. Finally, you will have prepaid costs, these cost are required by the lender to be paid in advance such as homeowners hazard insurance, private mortgage insurance and property taxes. Remember, that loan costs can be negotiated with the seller, choose a buyers agent to represent you. You should consider all cost when budgeting before you decide to submit an offer to purchase your home. A prepared buyer will make a strong offer. The N-Sourcer. |