You have decided on the type of home that you will get for your next move. You already like the style, the cost, the location and all the other attributes that you have considered to make that very important decision. You are also ready with your down payment and have finalized everything with your real estate agent. Then, you suddenly think if there are other costs that will be incurred aside from those that were already relayed to you. You do not want surprises in this area especially if you do not have enough savings to cover unbudgeted expenses. Before signing that document, it is a wise move to know what the other costs are with regard to that important purchase. It will be best to be ready and prepare than to face the situation with worry and financial problems.
When closing a home, it is good to look at the Good Faith Estimate or the costs associated with your decision to purchase at settlement period. The interest rate is not the sole basis for the costs that you will incur during the closing stage.
When a prospective lender is legally operating, it is required by the Federal Law to provide a Good Faith Estimate with a three-day period upon the application of a mortgage. Though this is true, the reality is that there are always discrepancies between the estimate and the actual amount that needs to be paid. Some lenders intentionally reduce the cost to win the sale. This may be understandable but this is not good for borrowers who have limited funds to use for the purchase. What the government is doing is to ensure that a more accurate estimate is given to give the buyers the true picture in terms of purchase and other associated costs.
Closing costs normally range between 3% – 5% of the total loan amount. This is the allowance for the costs that will be covered for the other transactions with regard to your purchase. What you can do as a buyer is to gather the good faith estimates of at least three buyers and compare the costs. With this information with you, you can compare and check what one lender covers and what is not. Then, you can check on the details with each one.
Good faith estimates normally include appraisal fee, credit report, lender’s inspection fee and other costs that cover insurance, hazard and other requirements. You should note that closing costs are categorized as non-recurring and recurring. The non-recurring costs are one time fees and you are no longer to pay them again. Recurring costs should be repeatedly paid over a period of time. These include insurance and property taxes. It is good to classify these costs and know how much will be required for your one-time fee and the periodic costs and make sure that you will be prepared for such.
Don’t go to the last step of buying a home without checking on the closing costs. It is a wise move to look at this area and be assured that you are ready to move in that new house.
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