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More Articles on Mortgages and Purchasing a Home
Visit the Main Purchases Page
10 Steps to Buying a Home
Deciding How much to put down
Pre-Approval vs
Pre-Qualify
The best time of month to close
Escrows = Higher closing costs, plan accordingly
Home Buyer's Checklist - fill it out before you go looking
Things to remember After the Move
Things to remember Before the Move
How Much House Can you Afford
a chart of house prices based on what you have left over
Income and Debt
a chart of how high your payments can be
Other Sections in
the Library
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Applying
Appraisals
Credit
Escrows
Glossary
Mortgage Types
Points
PMI
Escrows = Higher Closing Costs
At closing, you will be expected to prepay certain items that will be placed in special escrow accounts by the lender. Escrows are a large part of closing costs and many borrowers and unfortunately mortgage loan officers do not plan for enough for the funds.
Higher Closing Costs?
So, you're saying "Sure, I understand I have to put this money out for the escrow fund, but why does this make the closing costs higher?"
Simple, closing costs may be two or three thousand plus your prepaid items and escrow funds. Technically, these items are included in the section of the Good Faith Estimate titles "Prepaids" but the bottom line is that you will have to come up with the cash to pay these items at closing.
If you plan to have an escrow account, make sure that you have planned to have at least 6 months of taxes set aside when you are looking at the price of a home in addition to the downpayment and other closing costs.
If you are not planning to have an escrow account, there is a considerable difference in the amount of cash necessary to close the loan. For instance, if the taxes are $4,000 per year you would need to put up about $2,000 (or more) to set up your escrow fund.
Not Planning for the Higher Costs
So, you have saved $22,000 and are ready to make an offer and jump into the realm of home ownership!
You've chosen a $200,000 house and made an offer with a realtor and now you need to get a mortgage, you planned for that $2,000 of closing costs you think you will need.
You will need not only the $20,000 down payment, but the $2,000 to $3,000 of closing costs and that $2,000 we spoke of above for the escrow fund and any extras you want in the house. Ouch!
You have to make the decision to put $18,000 down or to wait and save another 2 grand to get the house. How dissappointing! Not only that, but that 90% loan now has to qualify in the 95% mortgage market and your interest rate went up 1/4%!
Of course, you can always go back and ask the seller for a sellers concession to cover an extra $2,000 of closing costs, but how receptive will they be to that now??
Hopefully, you have read this article in advance, spoken to a mortgage person before you made that offer and were ready for all the costs that are coming your way.
Summary
It's all about being prepared and planning ahead. Know all the numbers and talk to your mortgage banker to figure out how much you will have to come up with BEFORE YOU MAKE AN OFFER
Thanks to things like sellers concessions and creative financing programs like 103% or even 107% financing, you can make an offer on your house that makes the most sense for you.
Give me a call or fill out the information request form and we will discuss the options that are available for you!
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Harry
Smith
email Harry@dailyinterest.com or reach me by phone Office 1-248-548-7655 Cell 1-248-514-9000 |
Drew
Smith
email drew@dailyinterest.com or reach me by phone Office 1-248-548-7655 Cell 1-248-703-7770 |
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