First Time Home Buyer

If youre looking to buy a home, or are in the process of doing so, youre probably wondering what it means when people talk about closing costs. Its a vague term, and one that makes a lot of people wary because it implies reading fine print and possible extra fees. Thats exactly what closing costs are. The good news is that many fees associated with closing costs are easy to afford.

Once the home buyer, the home seller, the banks involved and any and all real estate brokers or agents are satisfied that all terms of a home sale have been met, one of the last things left to do is pay the closing costs. The following is a brief overview of some of the most common closing costs:

-Pro-rata Property Taxes. Any taxes on the home that need to be paid by the buyer or seller or both, contingent upon the date of the sale.

-Pro-rata Homeowner Association Dues. To be paid by the buyer or seller or both, if the home is a part of a Homeowners Association.

-Home Warranties. Good for one year after the purchase of the home to cover the failure of any major systems.

-Inspection Fees. Normally paid by the buyer to verify that the property doesnt have hidden problems.

-Appraisal Fees. Paid to an appraiser who verifies that the house is worth the price being asked for it.

-Points. Prepaid interest charged by the bank thats lending the mortgage.

-Prepaid Property Insurance. Required by the mortgage lender to verify that the home is insured by the new owner for one year in advance.

-Pro-rata Interest. Interest on the mortgage as incurred by the dates of the sale.

-Recording fees. Paid to government for recording the transfer of ownership between parties.

-Mortgage Application Fee. Paid by the buyer to the mortgage company for processing the loan.

-Survey Fee. Properties must be surveyed for dimensions and other physical questions before sale.

-Brokerage Commission. Paid to the mortgage broker who sold the home for the seller. Paid by the seller.

-Title Service Costs. Pays for title search and title insurance and any other title issue.

-Document or Transaction Stamps or Taxes. Paid to the local government for all paperwork needs.

Closing costs can really add up, so if you have questions about them, be sure to go over them in detail with a real estate industry expert before you begin your search for a new home.

If youre looking to buy your first home, and are new to the real estate game, then youve probably heard people discuss points, and youre not too clear on what they are. Points are, essentially, a form of prepaid interest on your mortgage loan. A point usually equals one percent of the loan.

When a lender charges you, the borrower, points on your mortgage loan, the lender is making more money on the loan beyond the total of the interest rate. It will benefit the borrower, because by paying points, youre lowering the interest rate on the loan, and so youll have a smaller monthly payment to make. When you pay points on your mortgage loan, youre essentially making a big down payment on your loan in order to get a better interest rate, which will benefit you in the long run. So paying points is really a question of delaying gratification, because at some point in the time span of your mortgage loan, youre going to reach a moment of equilibrium where the amount of money you spent on paying points equals the money youve saved by paying the lower interest rate. Once you get past that moment youre saving even more money.

If you happen to sell your home before you reach the moment where savings on monthly payments equals the amount spent on points, youre going to lose money on the purchase of the points. So its somewhat of a risk to buy points up front, because if you sell your home before the savings are fully realized, youve lost money.

Buying a home is a complicated affair, so before you do anything, be sure to sit down with a real estate expert or a trusted financial adviser and go over the process in as much detail as possible, so that you feel comfortable that youre making the right financial decisions.

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