The Real Costs of Buying a House
Purchasing that first home is an exciting time for anybody; unfortunately, deciphering the total you will need at closing can be very stressful. It is common for buyers to only focus on their monthly payment. However, in addition to the interest and principal due on the loan, a buyer should factor in 1/12th tax bill and 1/12th of homeowner’s insurance into their monthly payment.
Start with an Estimate
Your loan estimate will break down the estimated costs for the loan you’ve requested and includes interest rate, monthly payment, and total closing costs. It also takes taxes and insurance into account and notes how your payments could adjust in the future (for adjustable rate mortgages).
Your loan estimate is designed to tell you in clear terms what your loan will cost, and all lenders are required to use a standardized version of it. That means it’s a good way to compare two loans against one another when you shop around.
Getting your loan estimate is your way of looking before you leap, but it doesn’t mean your loan is approved or denied. Once you’re ready to move forward, your lender will ask for more financial information from you and generate your Closing Disclosure.
The Rates They Are a Changin’
As far as guaranteeing an interest rate, neither a credit union nor any other lender can do that in a casual conversation. This is because they cannot “lock in” a rate for you until you complete all your paperwork. Interest rates rise and fall from one day to the next. This means that the rate you get today may not be the rate you get tomorrow when you fill out all your paperwork.
Closing and Disclosing
Your closing disclosure is a document the lender must provide you at least three days prior to closing the loan.
Once you have your closing disclosure, you’ll be able to review exactly what your loan will look like. This disclosure covers much of the same territory as the loan estimate, but with numbers that won’t change. You’ll also have information about any possible penalties for late or partial payments and whether insurance and taxes are included in your payment.
If any information on your closing disclosure looks incorrect or you don’t understand it, speak to your lender before you make your final decision.
Expect the Unexpected
Often new homeowners haven’t prepared for unexpected expenses like a broken water heater or air-conditioning unit. Because unexpected expenses can get very expensive, very quickly, some lenders require borrowers to have a savings account with enough money to cover two months of mortgage payments at closing.
It’s Time to Get REALtor
Don’t attempt to purchase a home without a professional’s help. A realtor’s job is to be a go-between for the buyer and seller. It involves a lot of knowledge, expertise, and just plain hard work. Although the seller always pays the commission, keep in mind that this cost may come into account when negotiating on the final price.