Buying a home can be one of the most exciting times in life. It can also involve feelings of anxiety.
A recent article in the Dallas Morning News Home section, “Financing for Dummies”, says “The fear of rejection, the horror stories from friends and family, and the overall mistrust of the mortgage industry have made the process more intimidating than it really is.”
I thought the article provided some good basic information. Investing a little bit of time in education is key. Once you know the costs associated with purchasing a home you can know what to expect before closing.
3 costs associated with buying a home
There are three costs associated with buying a home: the down payment, closing costs and prepaid expenses.
Down payment
The down payment depends on the loan type. However, if you’re in pursuit of financial freedom and living debt free, consider paying 20% down and getting a fixed rate conventional loan.
Closing costs
Closing costs are fees associated with the mortgage transaction. Closing costs include administrative costs, title company charges and lender, appraisal, credit report and attorney fees. The article tell us to be aware of “no closing cost” loans. The mortgage transaction comes with fixed costs, and if they’re not paid out of pocket they are likely built into the rate or being charged somewhere else.
The Everything Homebuying Book is a good resource to consider. It does a nice job of providing examples and descriptions of various costs as well as other helpful information about buying a home. It has answered a lot of basic questions for me in preparing for the home buying process.
Prepaid expenses
Prepaid expenses include prepaid interest, homeowners’ insurance and property taxes. The prepaid expenses are not closing costs. They are actual costs of taxes and insurance.
Cash required to close
Cash required to close is determined by adding the down payment amount, closing costs and prepaid expenses. Subtract any earnest money, fees paid up front and costs the seller is is paying to arrive at an estimate of cash needed to close.
Getting some basic education will help improve your experience and take the anxiety out of buying a home. Make sure you ask questions if something doesn’t make sense to you. Ultimately, take your time, and make sure you’re comfortable before making any final decisions.
