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Home » Business And Finance Articles » What To Expect In Closing Costs On A Home Purchase

What To Expect In Closing Costs On A Home Purchase

Many are taking advantage of this year's low mortgage rates to purchase a home. Pent up with excitement, many families, who have scrimped and saved for a down-payment, jump for joy when the mortgage lender finally approves their application. But, they should realize that there's a whole new set of expenses that must be covered before actually closing on the sale.

New homeowners are often taken aback by up-front closing costs such as mortgage and title insurance, attorney fees, recording fees and loan points, which can run into the thousands of dollars. But there is no need to be afraid of these charges. With a little background on their purpose and shrewd financial foresight, closings can be a breeze.

A lender's charge for processing the loan can be determined at the beginning of your buying process. Referred to as "points," these charges are expressed as a percentage of the total loan. For instance, three points are equal to 3 percent of the borrowed amount. "Points" can also become a tool for negotiation with the lender and seller. In a buyer's market, home sellers will often agree to pay mortgage fees in order to close a deal.

Title insurance can be a substantial expense. The one-time title fee, including search and examination, averages around $430 for a $100,000 home, but it's recommended that you check with a local title insurance agent ahead of time to effectively determine what you'll owe before closing.

Additional costs, such as attorney charges, and recording, transfer and inspection fees, can also be predicated ahead of time by the buyer. Most often pest and survey inspections, although included in the official closing statement, are conducted and paid for long before the closing date. However, buyers should consider them as additional up-front costs.

Some closing costs, such as "points," are fully tax deductible that tax year if you show proof of a separate lump sum payment. They are not deductible in a few cases when the loan is the result of re-financing rather than a home purchase. Application, appraisal, documentation and broker fees can not be deducted.

Some states require payment of property taxes at closing. In some instances, buyers and sellers are asked to put money into an escrow account that will cover any past and future tax obligations. Be sure to check with an attorney or real estate agent before the closing to determine your property tax commitments.

Also, be prepared to pay any assessments if buying a condominium or into an association-governed property. Fees for credit reports, notary public seals and assumptions, which includes the processing of official documents, may also arise.

Knowing what total closing costs will be before starting your home search can help you better understand what price range is right for you. In the end, the process of closing on a mortgage will be easier than you think, leaving more time to plan for your new home.

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Real Estate Remains A Strong Investment

Opportunities to make big, quick profits in residential real estate tend to come and go in cycles. When a local market is hot, families may find it possible to buy a house at an attractive price, fix it up, and watch its value rise in just a few years.

When the same local market is at the low end of the appreciation cycle, reaping a profit on the family home can take a good deal more time but the reward can be just as satisfying if price and location and carefully considered.

Even in uncertain economic times like these, history shows that real estate is one of the soundest investments a family can make. During the Great Depression of the 1930s when the stock market plummeted as much as 89 percent, housing prices dropped only 39 percent. According to most of the research on housing trends, prices continually stay at the same level as, and most often appreciate faster than, the rate of inflation. Housing prices actually rose an average of 10 percent during the recessions of the mid-1970's and early 1980s.

CENTURY 21 statisticians report that the rate of home appreciation since 1990 has been around five percent nationally, with inflation hovering around four percent. Homeowners, obviously, are still staying ahead in the real estate game on average.

And, with mortgage interest rates the lowest they've been in two decades, real estate today is a more attractive investment than it's been in years.

First-time buyers are the big winners in this environment. Drawing up a budget can help you and your family decide on what you can afford. Once you've determined a price and picked your desired community, shop around to find the best house you can buy for your money. This strategy can help you realize greater appreciation two or three years down the road.

This is also a good time to purchase a second or vacation home. A bargain cabin in the woods today might bring an excellent return when housing prices move upward. Affordable second-home prices also allow you to purchase a vacation home that can serve as a stepping-stone to a larger retreat in the future.

But appreciation isn't the only advantage to buying a home. The federal government thinks home ownership is so important to the future of our country that it allows mortgage interest to remain the last substantial tax shelter for families. Owners can also take deductions on their property taxes. And, the profit on the sale of your home remains tax free as long s you buy a house for a greater or equal price.

So before you decide that this is not a good time to invest in residential property, re-examine the financial benefits of owning your own home and put them to work for you.