The decision to purchase a home is something that requires very careful consideration. It’s a long-term investment in your future and should be treated as such.
Most homeowners own their property for ten to twenty years or more, so take as much time as you need to find the house that best meets your own individual wants and needs.
It’s also a major expense for many individuals and couples. You have to set aside funds for the inital down payment, homeowners insurance and monthly utilities and other associated fees.
There are also closing costs that have to be paid for before you can take ownership of the property. Closing costs are usually around three to five percent of the total amount of your mortgage loan.
It’s not always easy, but buying a home in Florida can still be accomplished. Careful budgeting and planning will help you achieve your goal.
Here’s a rundown of the most common closing cost components for home buyers:
1. Loan application fee
This is the cost of applying for a mortgage loan with a particular lender. This charge is usually charged unilaterally by banks, credit unions and other lending institutions. Loan application fees are generally around $300 to $500 on average.
2. Mortgage insurance that is paid upfront
Mortgage insurance lessens the burden on financial institutions when borrowers default on their loans.
Mortgage insurance is usually built into loan contracts, especially if you’re making a down payment that’s 20 percent or less of the total sale price of the home.
These premiums vary from state to state, with an average annual cost of around $2,000 or more.
3. Loan origination fees
These fees are assessed for processing new mortgage loan applications. They are quoted as a specific percentage of the overall mortgage loan.
Loan origination fees are typically about 0.5 to 1 percent of the total loan. These fees are often negotiable, depending on the particular lender.
A mortgage discount point is an optional charge. Borrowers can opt to pay these fees to have the interest rate on their loan reduced.
This is also referred to as “buying down your rate.” One point is equal to one percent of your total mortgage amount. Points are assessed at $1,000 per every $100,000 borrowed.
5. Title insurance
Title insurance protects the interests of both the buyer and the borrower in the event that any claims are made against the property after the sale has been completed.
Title insurance is almost always required in any home sale. The average title insurance policy is about $1,000.
That figure can fluctuate according to the home price and the particular rules and regulations that have been established in your state.
6. Property taxes
Property taxes are another fixed cost. This is something that you’ll continue to pay as long as you own your home.
These taxes are usually charged once or twice a year. Home buyers are often held responsible for a pro-rated portion of property taxes upon closing.
The national average effective property tax rate is 1.08 percent. The percentage can vary from state to state. These taxes are assessed by a city or county tax assessor.
7. Homeowners insurance premiums
Homeowners insurance protects people against theft or damage to their property. This is another required charge.
Policy costs can vary. The average homeowners insurance policy runs about $3,000 annually. Premiums may be paid, monthly, quarterly, bi-annually or annually.
Some insurance companies offer a discount if you already have other existing insurance policies with them.
8. Mortgage broker commission
Mortgage broker commissions include items such as prepaid insurance and taxes, appraisal charges, escrow fees, lender fees and any other related charges.
Mortgage broker commissions are typically about one to two percent of the loan’s total value.
The closing disclosure is usually delivered about three days before closing. This disclosure has all the final breakdowns for each line item. Feel free to review this document once you receive it and ask any appropriate questions that you may have.
There are some instances where closing costs can be included as part of the mortgage. This is what’s known as a no closing cost mortgage. They can be beneficial because you don’t have to pay as much up front at closing.
However, this also means that you’ll probably have a larger mortgage loan and higher monthly mortgage payments. It’s a viable option for some, but unless you can really afford it, you’re probably better off avoiding this option.
Closing costs are something that you should budget for as soon as you decide that you want to buy a home. Factor them in along with the down payment, homeowners insurance, monthly utilities and homeowners association dues, annual property taxes and other relevant charges.
When you’re making your budget, spend some time to review your current income and expenses. If there are any unnecessary or redundant expenses, it’s time to eliminate them altogether.
If you have credit card balances or other existing debt, make every effort to pay them off or pay them down as much as possible.
You’ll free up more income that can be applied toward the home purchase. It also helps to improve your credit and make your credit history more favorable when applying for a mortgage loan.
It’s a good idea to create a schedule for yourself, so that you know when you have enough saved for the down payment, closing costs and other fees. You can track your progress on monthly or quarterly intervals. You can always adjust your plan as needed.
Not everyone likes paying closing costs, but they’re an important part of becoming a home owner. Once they’re paid and the closing documents have been signed, you’ll receive your copies of the paperwork. You’ll also get the keys to your new home.
You can transfer the existing utilities over to your name and decide when it’s time to move in. You’ll finally be able to enjoy the rewards of your hard work and start making your new house a place that you’re proud to call home.