Monday, July 17, 2017

Single Parent Home Buying Guide Part Two: How Much Does It Cost To Buy A Home?

When you buy a home as a single parent, especially if it is your first house, every dollar counts. As a renter, you're used to paying a security deposit and your first month’s rent upfront.

But when you buy a home, the upfront costs are usually higher. Taking care of the legal and mortgage paperwork can be expensive, and you generally have a down payment and closing costs.

Just remember that you are buying an asset to build your financial future.

Down Payment And Reserves

Very few mortgage programs finance 100 percent of your property purchase price. In most cases, you need a down payment. This makes the loan safer for the lender, and mortgage approval more likely for you.

Down payment

Most mortgage programs dictate five to 20 percent down payments. However, some require as little as three percent.

VA loans for veterans and USDA loans for eligible buyers in rural areas require no money down.

You can find down payment assistance loans and grants through state and local homeownership programs at www.downpaymentresource.com.

Earnest money deposit

When you make an offer to buy a home, expect to include an "earnest money" check. The check is to show the seller that you're a serious buyer, “in earnest,” making a serious offer.

The deposit is credited toward your down payment and / or closing costs when you complete the home purchase.

If the seller accepts your offer, the check is put in an escrow account. It cannot be touched until the final documents are signed to transfer ownership.

If you don't buy the house, your earnest money is almost always refundable to you. The amount of your deposit is up to you, but one-to-five percent of the purchase price is traditional.

If you’re competing with other buyers, you might want to make your deposit larger.

Reserves

In addition to your down payment, it's smart to have some extra savings to pay your mortgage, even if your income temporarily drops or stops.

These funds are called "reserves", and they are measured in months.

If your mortgage payment, property taxes and homeowners insurance equals $1,000 a month, and you will have $2,000 in savings after closing on your home purchase, you have two months of reserves.

Prepaid Expenses

Some costs of homeownership have to be paid whether you have a mortgage or not. But if you apply for a home loan, these costs have to be paid in advance.

They are called "escrows", "prepaids", or "impounds."

Property taxes

Lenders typically require two or three months of property taxes at the closing for property taxes.

Future property taxes already paid by sellers are returned to them. These amounts will then be added to your closing costs.

The amount needed depends on your closing date and the due date for the taxes. If the sellers owe taxes that haven’t been paid yet, that money comes out of their proceeds from the home sale.

Homeowner’s insurance

Lenders require proof of homeowner’s insurance before approving your mortgage, and most make you pay the first year’s premium at the closing.

This requirement is to cover the lender's investment if your home is destroyed or damaged, but it also protects you from lawsuits and theft or damage to your personal property.

Mortgage Lender Charges

Mortgage lender fees can vary depending on the type of loan you choose, and the pricing structure you prefer. In general, the lower the rate, the higher the fees.

A "no-cost" mortgage, for example, has a higher interest rate to cover the lender's costs and build in a profit.

Origination (or whatever)

Mortgage fees can be called many things -- origination, documentation, underwriting... it doesn't matter.

Charges for flood certification, credit reports, and other expenses (often called "garbage fees" in the lending industry) may be included in the origination, or they may be broken out.

It doesn't matter.

Lenders can call these fees "hot dogs" and it still doesn't matter. What matters is the bottom line: the total lender charges for your loan.

Mortgage insurance

Mortgage insurance is paid by borrowers who put less then 20 percent down when they finance a home. It protects the lender if you don't pay your loan.

Mortgage insurance can be paid as a lump sum upfront, or in monthly installments, which are added to your mortgage payment. Some programs (usually government-backed loans) require both upfront and monthly insurance.

Home appraisal

Your lender will require an appraisal to determine the property value. This may cost $300 to $600 or more, depending on the size of the home and the location.

You’ll typically pay the appraisal fee upfront.

Lender's title insurance

Lenders want to be sure that your seller has the right to sell you the house -- that there are no IRS liens, heirs or other parties with rights to the property.

So they require a report from a title company, and they make borrowers buy title insurance to cover the loan amount if it turns out the property legally belongs to someone else.

Purchasing Costs

Some costs have to be paid even if you don't finance your home. Property sales are complex and there are many people and companies involved.

Home inspection

You should have a home inspection to look for serious problems with the property, and to see if there are items that you can negotiate to have the seller repair.

An inspection costs $250 to $600 depending on where you live and the size of the home. Inspections are usually paid for in advance.

Other inspections

Depending on local laws, lender guidelines and your preference, you may need to pay for a termite inspection, a radon inspection and a septic inspection.

Each can cost an additional $100 to $300.

Owner's title insurance

The lender's title policy protects the mortgage lender's interest in the property (the loan amount).

It takes an owner's policy to cover your interest -- your down payment and home equity.

Escrow or legal fees

In some locations, properties change hands through title companies with escrow officers to handle the deal.

In other places, it's done by attorneys in law offices.

Either way, there are fees involved.

Additional closing costs

Closing costs vary by location. Some states have very high costs, while others' costs are quite low.

There are usually transfer taxes and recording fees to the county, for example.

Seller Concessions

Keep in mind that all home purchases are negotiations, and some costs are traditionally paid by sellers, some are split, and some are covered by the buyer.

However, if you'd prefer to have the seller cover some or all of your closing costs, instead of lowering the asking price, you can ask for that.

Those are called "seller concessions" and allowed by most mortgage programs.

Many single parents have former partners who may be involved in the homebuying process in some way or other.

No comments:

Post a Comment