Throughout the next several weeks we’ll be posting articles and info on various aspects of the home buying process. Topics will cover everything from saving for a down payment, to refinancing, to purchasing investment properties, and more. We encourage you to connect with us on any questions you might have, and to share this information with friends and family.
You’ve decided to buy a home. Congratulations! That’s a big step.
The next step? Gaining a full understanding of the costs associated with your purchase. People often assume the only cost of buying a home is the price of the home, and that’s it. Unfortunately, that’s not the case- there can be a lot of other costs you should be prepared for. Here’s a quick overview of some common purchasing costs you should expect when buying a home…
The down payment is a percentage of the purchase price. It could be anywhere from as low as 0% down for veterans and those in rural areas, to 3 to 3.5% for first time homebuyers, to as much as you would like. However, if you put less than 20% down, most lenders will require Private Mortgage Insurance (PMI), which is an insurance fee that protects lenders against loss if a borrower defaults.
- Borrowers may request cancellation when the loan amortizes to 80% Loan-to-Value (LTV) or is paid down to 80% LTV, if certain other requirements are met.
- If you’re current on your loan payments, PMI will automatically terminate on the date the principal balance of your loan is first scheduled to reach 78% of the original value of the property.
Pre-paids consist of property taxes, homeowners insurance, daily interest through the end of the month and the amount needed to establish an escrow account for paying property taxes and insurance. Therefore, pre-paids will vary depending on the price (value) of the home as both property taxes and insurance are based first on the value of the home and the value will vary from county to county and the state that the property is in.
Closing costs are made up of services and/or products that are required to complete a home loan. These items will include appraisals, credit reports, title insurance, escrow, county recording, flood determination, tax service, processing, underwriting and other fees and points.
Many of the closing cost items are a fixed amount and will be consistently the same for all loans. However, some of the items of closing costs are based on the purchase price and/or loan amount. Therefore, closing costs will vary with each transaction.
Buying a home involves more than just the cost of the home itself. Fortunately, there are a few different ways to go about paying these costs – for instance, the seller may be able to pay the pre-paids and closing costs. The most reliable way to discover your payment options is for you to speak with an experienced mortgage loan officer. They can offer suggestions and help guide you through the process.
Steven Raymond, VP or Residential Lending at USAgencies Credit Union, has over 30 years of experience in the mortgage industry. Steven’s seen it all, as far as mortgages go. If you have questions—about purchasing costs, getting pre-approved, or anything else mortgage-related—talk to Steven!
Vice President of Residential Lending, NMLS#: 234025
Direct: (503) 275-0329
Toll-free: (800) 452-0915 x329
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USAgencies Credit Union