Tips For Home Buying – Understanding Closing Costs
When buying your first home, you need to be aware that closing costs is an essential part of the sales contract and homebuying sales. Few first time homebuyers realize that closing costs can be as much as 15 percent of the sales price and many lenders require you to pay for the closing costs upfront.
So that you will be able to afford the closing cost as a part of the deal, you have to know these things beforehand so that you will be able to budget better and even cut down the pricing of the closing costs in a loan package for your new home purchase. It’s important to remember that the maximum loan amount offered by the lender is based on the sales price and not the net price – sales price minus closing costs – are paid by the buyer. Closing costs are allocated in several different ways, and you can work with a real estate agent and lender to arrange the best possible plan with your available funds and stay within your budget.
The first step in understanding closing costs is to learn what buyers are typically responsible for. Custom, not the law, tells you how the closing costs are allocated and what the requirements are for the buyer and the seller as part of the contract as explained by Barron’s ‘Smart Consumer’s Guide to Home Buying’. The buyer is typically responsible for all fees and discount points of the loan. The lender adds these at the end of the contract and can vary depending on the financial institution. Some bankers will waive this fee for preferred customers or as part of your contract, but it’s important to get an accurate estimate of this as early as possible during your loan financing process.
Home insurance premium payments is the buyer’s responsibility also, and more often than not, before the home buying process can begin, premiums have to be paid. It’s generally a good idea to have extra cash available to pay for this premium so it doesn’t get rolled into the loan, and the premium cost varies by the insurance company you choose to work with. Before signing anything, do compare insurance policy rates and take the time to study your available options. In most cases, the following costs are the responsibility of the seller:
Sales Commissions – Both the buyer’s and seller’s agents have their allocations and the total commissions payable will depend on the agreement of the seller and the agent.
Inspection Costs – the seller will assume the cost of termite inspection and the other required tests for the homes for sale before the purchase can be completed.
Title Insurance – Many people assume that they have to mind the costs that are affiliated with the title company and this is a common oversight for those who are just buying their homes for the first time. As a general rule, the seller is responsible for the title insurance cost that are listed as a closing cost.
It is to your advantage to be aware of what closing costs are so that you will be prepared for your new home purchase. You can seek the aid of a professional Realtor to provide you with the information you need about closing costs and other related expenses associate with you new home purchase.
When looking for MN homes for sale, searching the Internet is one of the fastest ways to find the types of property your looking for. People use the Minnesota MLS to view most of the homes that are currently on the market.
Personal Story Of Real Estate Loss
Real estate is a tough business, especially in this recessionary economy. Prices, almost universally across the 50 states, are down and in some places, still dropping. If you got into the market a few years ago when prices were inflated you are in bad shape now. Especially if you were sold a bill of goods on a cheap mortgage that turned out to be a little too good, chances are you are going through a foreclosure or short sale.
I live in California, where the prices of homes five years ago was way above the assessed value and people routinely had buyers with fat checkbooks knocking down their door to get into homes. Unfortunately, I had just moved to Los Angeles, and I needed a place to live. Going with the conventional wisdom of buying is better than renting, I bought property.
I knew I couldn’t afford the place I ended up with. But, they gave me the mortgage so maybe they knew something I didn’t. My house was overpriced and my mortgage was way too pricey and not a good deal at that. I had little equity and no more coming anytime soon. Then, my wife and I had our second daughter and my wife left her job to stay home. We lost her full-time salary and were heading up-creek further without a paddle. We were literally sitting on collapsing furniture with home space heaters at our feet because we couldn’t afford to repair anything when it broke.
As was bound to happen, the housing market and economy collapsed. Our home devalued quickly but our mortgage payments did not. Now, not only could we not afford the home, we couldn’t sell it at a profit and barely sell it at a loss. We went through a bankruptcy to get rid of our debt and decided that to free ourselves up from all financial burdens, we would sell the home through a short sale if we could.
Today we rent and are on the path to recovery. We did learn many lessons and had I to do it all again, I would do it very different.
If I could do it again, I would get into an income property so that I could have a tenant cover the mortgage. I would get into a home that needed some work and touch it up with some home decor accents and maybe a touch of paint on the walls. Certainly, I would buy something not only in my price range but below it. And I would definitely get a mortgage that built equity and whose terms were logical and sensible.
I wouldn’t want to do this again and have to worry about covering mortgage monthly without the income to do it. I would own something with obvious value and not sell until it was a truly decent resale property regardless of the economy.