Are you tried of renting your home and want to take the first steps towards purchasing? Although purchasing your first home can be an exciting milestone, there’s also a lot to consider. It may not be as fun as house hunting and thinking about design choices, but it’s also important to consider the financial aspects of buying a home and the different fees involved. For example, if you are taking out a traditional mortgage in order to finance the purchase of your home, you’ll usually need a down payment of at least 10 percent. In addition to cash for your down payment, you’ll also need to pay for closing costs.
A brief explanation of closing costs
When you buy a home, there are a lot of different fees that must be paid for a variety of services, like legal fees, appraisal fees, and much more. These are a bunch of miscellaneous costs that are all wrapped into what is known as the closing costs, and must be paid before you can officially take ownership of your home. They can range anywhere from 2 to 5 percent of the sale price, which means for a $100,000 home, you can typically expect to pay anywhere from $2,000 to $5,000 at closing.
Paying for closing costs
There might be some scenarios in which a seller will pay for all or a portion of the closing costs, and certain types of mortgages might allow a reduction in closing costs. Generally, however, a buyer should be expected to pay for these costs on closing day.
Rolling closing costs into your mortgage
If you’re taking out a traditional mortgage and can’t afford to pay for the closing costs in cash, you may have the option to finance them and roll them into your home loan. Although this can offer a huge advantage to many buyers and can make homeownership a reality, there are also some disadvantages to carefully think about first. Financing your closing costs means a larger mortgage, which will mean higher monthly payments and the fact that you’ll be paying off those closing costs for many years. Additionally, when you finance your closing costs, it will usually cause the interest rate on your mortgage to increase. You have to calculate just how much more you’d be spending, especially over the life of the loan, to make sure it’s really worth doing.
If it’s not feasible to pay for closing costs and you don’t like the idea of financing them, there are other options to consider. For example, you might want to opt for a home that costs less and is under your housing budget. Even though a pricier home might be affordable and fit comfortably within your budget, you have to consider that a home that is priced lower will also mean paying less in closing costs. You’ll also want to shop around for mortgages from different lenders and compare their various offers, including interest rate and what percentage you’ll be required to pay for closing costs. You might find one that offers the same (or just slightly higher) interest rate that you were offered from another lender, but lower percentage in closing costs.
Do you want to buy a home, but need extra cash to take care of your down payment and closing costs? Peachtree Financial Solutions may be able to help if you’re receiving structured settlement payments. Contact Peachtree Financial Solutions today to learn more about selling future payments for a lump sum of cash.
Nothing above is meant to provide financial, tax, or legal advice. You should meet with appropriate professionals for such services.