Has anyone ever broken down the costs of purchasing a home for you? In this video, I’m going to walk you through common closing costs so you can be better prepared to buy a house. Because the good deals always go fast, knowing your numbers will allow you to score the best home at a price that works for your budget.
Common Buyer Closing Costs
The cheapest mortgage with the wrong strategy can cost you thousands of dollars. While purchasing a home is exciting, it’s vital to know your numbers to make the right decision. In essence, buying a house without knowing your closing costs is like painting it without knowing the color. When you work with a mortgage advisor, we can structure the best loan possible to meet your goals.
Additionally, even if you have 20% saved for your down payment, it doesn’t mean you should put it down. We’ll go over that in greater detail later, but it’s important to be aware of it. When we figure out what your closing costs will be, we’ll already know how we’re going to structure your loan and can help you navigate your purchase.
Title & Loan Fees
First, you’ll have to pay fees to the title company, which is where you will close. The title company ensures that the property is free and clear of all liens when it’s transferred to you. You’ll also have some loan fees that you’ll pay to us, as the lender, since there is a lot of work that we do behind the scenes to get to the closing table. We keep ours extremely competitive, so they’re not burdensome to you at all.
Appraisal Costs & Prepaids
You’ll need to account for appraisal costs, too. There are some additional miscellaneous costs, but these are the larger ones. There’s another set of costs that can be paid by the seller, called prepaids. The largest of these prepaids is a year’s worth of homeowner’s insurance, which will be paid at the time you close.
Knowing the total closing costs and prepaids will help you be better prepared for what you need to bring at closing. Additionally, if you’re going to ask for a seller concession, you’ll know exactly what to ask for. Being prepared allows you to be very concise and clear, so there are no surprises for you at closing.
The Down Payment
The largest expense that you’re going to have is your down payment. This isn’t really an expense; you’re taking money out of your bank account and putting it against the mortgage on your home. Either way, it’s money that you won’t have access to after you close. A few thousand dollars added to the loan for the seller to pay your closing costs adds very little to your monthly payment. It can, however, have a dramatic impact on what you can afford. It will also make your life easier by having a little more cash in your pocket.
By now you’re probably asking yourself: how much should I put down? Is there a 0% option? Should I put down 3, 5, 10, or 20%? This is going to differ from borrower to borrower and depending on your loan to best achieve your financial goals. This is why you need us as your mortgage advisor. Think of us as a debt manager; we use debt to help you create more wealth in your life.
For example, let’s say that you came to me wanting to buy a $200,000 home with 10% down—which would be $20,000. Your $20,000 goes in and gives you the mortgage that you asked for. However, this may not be the best decision for you. If you put 5% down but took the other $10,000 and put it in an investment account, you could build your retirement. At an average rate of return of 7% per year over 30 years, that $10,000 would be worth about $76,000.
Down Payment Assistance And Mortgage Insurance
If that payment difference of $50 a month won’t create issues for you, you’ll be in a better position by working with a mortgage advisor who can set you up for your financial success. As a mortgage advisor, we need to educate you on the difference between what $50 a month does to your payment versus what $70—or $100,000 in retirement—will do for you in the future. This is what it’s like to work with a mortgage advisor, and this is what you can count on us for.
What about receiving down payment assistance? Typically, these loans are reserved for first-time homebuyers. To be considered a first-time homebuyer, you can not have owned a property in the past three years. This means you could have owned one many years ago and still be considered a first-time home buyer again. There are grant programs that are typically done through your mortgage bank and in conjunction with the state, helping to get you in with a very low down payment.
One more cost that you’ll need to consider is mortgage insurance on your home purchase. If you put down more than 20%, you won’t have mortgage insurance on your loan. That doesn’t mean, though, that you should put down 20%. As we discussed in the example above, taking that money and saving it for retirement may be the best-case scenario for you. Mortgage insurance varies between programs and will be greatly affected by your credit score on conventional loans. On FHA mortgages, mortgage insurance is the same across the board.
Working With A Mortgage Advisor
I could bore you with more details, but this is why you need to work with a mortgage advisor. We can weigh your down payment, closing costs, and all of your financial goals to make sure they align. We can then put you in the best position possible. My team and I are numbers guys. When it comes to mortgages, the numbers never lie. The better informed we make you, the better decision we’ll both make. Quite frankly, my business is based on referrals, the better decision I help you make, the more people you’re going to send our way.
I hope this helps you understand some of the costs that you’re going to pay when buying a home, as well as the expenses that you will incur and the investment that you’re going to make in your property. I’m sure you now understand why you need to work with a mortgage advisor like myself and my team. Regardless of the property you buy, knowing your numbers is the most important thing. If you’d like to learn more about our Client For Life Experience or have any questions, don’t hesitate to reach out to us!