Besides the down payment, home buyers must be prepared to pay a number of additional up-front costs. Collectively called 'closing costs'; these expenses typically range from 1�% to 3% of the amount of the mortgage.
Virtually all home buyers rely on a mortgage loan to finance a home. Few mortgage loan programs will enable you to finance the full purchase price of a home. Instead, you will have to contribute a portion of the cost from your own funds (called down payment).
An escrow is an arrangement where a neutral third party holds the funds and documents that change hands during the home selling and buying process. An escrow officer sees that items in the purchase contract are carried out and appropriate parties are paid.
Lenders require home buyers to purchase home-owner's insurance. This protects you against fire and, in some areas, floods as well. Most policies also protect the homeowner against theft and liability should someone be injured on the property.
Points are finance charges paid to the lender as part of the closing costs. Each point equals 1% of your total mortgage loan. Points can be negotiable and are sometimes tied to your interest rate. Paying more points to get a lower interest rate may be a good idea if you plan to take a long-term loan.
Making early or extra payments towards the principal (amount borrowed). Prepayment can shorten the length of your mortgage and thus lower your total interest.
Private Mortgage Insurance - Insurance the buyer carries to guarantee that the lender is paid off if the buyer defaults on a mortgage. It's required for all mortgages with less than a 20% down payment. The exact amount depends on the amount of the loan and the size of the down payment. It is usually a few hundred dollars.
This warranty covers any repair to the structure, mechanical systems, and major appliances of the house for a certain time. This warranty is useful when purchasing an older home.
An evaluation of the property's value. The appraiser visits the house and reviews recent selling prices of similar homes within the area. You will probably pay an appraisal fee at closing or before.
An evaluation of the property to find out if there are any problems with it that could change its value. The inspection also helps you decide if there are any items that you want the seller to repair before the final contract is signed. The inspector prepares a detailed report indicating any problems found, after inspecting the entire home.
