When you are a first time homebuyer, it may seem overwhelming when you are first obtaining a mortgage. You realize that this payment will continue for decades and that you need to come up with money for down payment and closing costs. This list below should help you through the process.
- Down Payment: This is usually the largest cost. In the past you could buy with no down payment, but in today’s current market when lenders have tightened their strings a bit, you should expect as little as 3% of the mortgage if you qualify for an FHA mortgage, or more depending on your credit score.
- Mortgage Origination Fees: The second largest cost is the loan origination fees, which is usually 1 % - 5 %. This depends on your credit rating. With good credit, usually your fee is usually 1%-2%, but every local area may be different.
- Discount Points: This is optional and used to buy down the interest rate.
- Appraisal: Often paid before the closing to the appraiser who determines is the home worth the amount of the mortgage. This fee will be decided by the value and size of the house.
- Credit Report: Usually paid with application for the mortgage.
- Private Mortgage Insurance (PMI): If the down payment is lower than 20% of the home’s, then the lender requires the buyer to pay for this insurance which helps to cover the lender's loss if buyer fails to pay the mortgage. This is both a one-time fee paid at closing, and a monthly fee, which is included in loan payments until the home has 20% equity.
- Escrow: The lender sets up an account at closing with several months of taxes and homeowner's insurance.
- Hazard Insurance: This covers damage within the first few years and is paid before the closing.
- Recording: This fee is charged to record the deed, any affidavits, and the mortgage with the county.
- Title Insurance: It is required by the lender to cover mistakes or omissions made with the title when the home was cleared.
- Buyer's Inspection: This is paid at the time it is completed which is usually 5 days of acceptance of the purchase agreement. Any additional inspections are paid by the buyer.
- Property Taxes: This is the buyer's portion that the purchase agreement is written to include.
- Utilities: This is any deposits and set up fees needed.
Cost and fees can vary depending where you live and the size house you are purchasing. When submitting a mortgage application a good faith estimate of costs is given to the applicant based on the amount that the buyers is qualified to receive. It is usually about 3.5-4% of the mortgage for the closing costs except the down payment.
Your real estate agent can assist when writing an offer to purchase including a request for seller to pay closing cost or even to split them.