There's a host of closing costs that as a buyer you should be familiar with and expect. In 2011 some of those costs have gone up considerably. Affordability is one of the topics that are on the minds of today's buyers. Research each of the following costs as it could save you hundreds of dollars.
1. Credit Report and Score: Before you even think about buying a home, you need to verify the accuracy of your credit report and score. You may access your credit report for free at www.annualcreditreport.com, but generally you must pay to view your credit score.
2. Down Payment: This amount ranges widely depending on the dollar price of your home.
3. Home inspection: It is imperative that you get a home inspection. Even newer homes may have hidden budget busters, such as termites, mold, or shoddy electrical work. Chances are your offer, unless you are buying "as is", has a clause that allows you to back out of the deal if the home inspection comes back unfavorably. A home inspection takes a few hours, during which you should be present, and costs around $300 to $500.
4. Loan Origination: An origination fee is what you must pay the lender to write and process your loan. This can be up to several thousand dollars.
5. Appraisal: An appraisal protects your lender from investing in a property that is over-priced. That means if the home appraises for $200,000, but the seller wants $225,000 you will only be able to get financing for $200,000. An appraisal also helps you to know the real market value of the home you are interested in.
6. Private mortgage Insurance: According to the Federal Reserve Bank, (PMI) is extra insurance that lenders require from most home buyers who obtain loans that are more than 80 percent of their new home's value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI." PMI protects your lender if you default on a loan, something that weighs heavily on the minds of lenders in today's economic climate.
7. Notary & Filing fees. Some states have a cap on the amount a notary may charge, while others don't. Also states and some municipalities also charge fees for the transfer of property.
Your lender will provide a good-faith estimate of your expected settlement costs. Planning ahead for these expenses is important and will help you determine when you can afford to buy a home.
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