The Costs of Getting a New Home Loan

Almost every day I am asked about the anticipated costs for getting a ‘purchase money’ mortgage loan.  Sometimes with any luck, the builder, developer or seller will agree to pay at least some of these expenses for you.  But regardless of who pays them, these costs are part of the price of buying your next home, so let’s take a look at the breakdown of the mortgage loan costs.
They consist of closing costs, loan discount points and prepaid items.

1 Closing Costs: The Closing Costs are the actual expenses that the lender incurs in the origination of a new home loan. Some of the costs are related to your loan application, such as the expense of newly updated credit reports on all applicants.  Other fees are related to the house itself, such as the appraisal of the property.  Some of the other costs are payment to the lender for processing your application, such as the loan origination fee.  All these costs are lumped into a broad category called “Closing Costs.”  Unless the seller offers to pay them for you, the Closing Costs are usually paid by the buyer, and often runs between 2 and 3 percent of the total amount being borrowed.  Because different states have different fees and taxes that are a part of the Closing Costs, it’s impossible to generalize the ‘Closing Costs’ fees nationwide.  So it’s important that you talk with a reputable lender ahead of time about what Closing Costs you can expect to pay in your part of the country.  Your Realtor is always available to help you with this subject.

2 Loan Discount Points: The Loan Discount Points are, in essence, a form of prepaid interest.  One Discount Point is exactly equal to one percent of the amount being borrowed.  It is paid in cash at closing, to the lender as a form of interest.  Discount Points have the effect of lowering the stated interest rate you will pay on the loan you obtain. 
For example: a lender might offer you a 30 year fixed rate loan at 8%, with zero points, or the same loan at 7.5% with 2 Discount Points.  Because the Discount Points are considered interest, the yield to the lender is approximately the same.
So why would I want to pay points?  Sometimes new home builders or developers will offer to pay Discount Points as an incentive, or on a special sale, and sometimes employers offer to pay relocation fees in Discount Points.

3 Prepaid Items: Most Banks and other mortgage lenders will want you to set up what is called and “escrow” account.  This is nothing more than a savings account that the lender holds.  Every month you will, in addition to your regular loan payment, deposit a sum for property taxes and for home owners insurance into this account.  When a bill comes due for taxes or insurance, your lender will make the payment for you. This way the lender knows those costs are being paid and on time.  The reason that all this matters today is that, on the day of your purchase, you will be required to set up an escrow account, with about 9 months worth of taxes and about 2 months worth of insurance payments. 
In addition, you will have to pay for the first year’s insurance policy in full. 
All of these costs are called Prepaid Items, and you must pay for them yourself.
Because regulations and customs vary from state to state, the amount you need at settlement may be more or less than the amounts I have discussed here. I suggest that my clients talk to a reputable mortgage lender to get an accurate estimate of what will be needed to buy your next home. Your Realtor is always available for advise on this, and on the other matters discussed here.

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How to Help Cut Your Electric Bills

When Mom used to tell you to turn out the lights, she was thinking of saving energy dollars.  Rarely have Moms words of wisdom been as fitting as they are now.  You can cut some of your lighting costs by simply switching to a different light bulb. Compact fluorescent lamps (CFLs) are much more efficient than incandescent bulbs and last six to 10 times longer, however they are a little higher in costs.

Consider the following:

Besides switching off lights, there are several other painless methods to conserve energy and save money on your electric bills.

*Plug-ins:
Look for those electronic devices, especially those with digital time and date displays that are hardly ever used, like alarm clocks, TVs and VCRs that may be in a guest room, or in the garage, and unplug them. Unplug devices used to recharge electronics/batteries when they’re not being used. Many types of transformers consume energy. Consider unplugging devices like calculators that are not in use.

*Appliances:
Wait until you can fill up your dishwasher before running it. And if you have  a heated-dry option, switch it off. Prop open the door a bit after the cycle is completed to air dry your load.
If you have an electric cook-top, turn the burners off a few minutes before the allotted cooking time. The heating element will stay hot long enough to finish the cooking without using more electricity.

*Refrigerators:
Refrigerators use more power than any other appliance in the home and deserve special attention. Although rushing out to buy a new refrigerator may not be in your budget, it is important to know that new models are more efficient and use as little as half the electricity of older units. Full refrigerators run more efficiently than ones that are only partially full. So buy more food and save some energy. Make sure the refrigerator door seals are tight. Do routine cleaning of the coils.

*Lighting:
Its obvious, but true: Turn off lights that are not being used.
Consider installing timers or photo cells on some lights. And instead of constantly nagging the kids, try occupancy/motion detector sensors that turn on and off automatically when someone enters or leaves a room.

These are just some things that can contribute to cutting overall energy costs.

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Along with Spring Comes Termites

Termites are swarming right now, so it is a great time to do a self inspection of your home.  If you have them and you probably do, you will be able to spot them or their tunnels.

A suggestion:  If you are purchasing a home, insist on the building being fumigated. No matter if paper work says it was exterminated a year ago, insist on it.  Remember this process also rids the building of all other little residents. And be  sure you have a profession of your choosing inspect for damage and then fumigate.

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Should I Buy a Newer House or an Older House?

As you start your pursuit to buy a new house to live in, one of the first decisions you should make to make is whether you should consider buying a newly built house or to purchase an existing house, situated in a more traditional neighborhood. I tell my clients to consider the following:

Consider the Neighborhood: Many people are drawn to existing neighborhoods where people have lived and have created a sense of community and tradition. The more mature landscaping, the established and more fully developed trees, the large yards, large front porches, and other features Maintenance/Repair: If you’re considering purchasing an older house, be sure you have a good handle on the detailed working conditions of all the major systems. Hire a professional home inspector, (only after you have checked his/her credentials) to do a formal inspection of the entire house and garage. If you enjoy doing small repairs and minor home improvement projects, then some of the smaller repair items could add up to a fairly  good reduction in the sales price.

Also consider when you buy an older house; you typically don’t have to worry about buying certain extras such as blinds for the windows, a security system, or the landscaping for the yards, fencing, etc. Older, existing houses are often found in more convenient and traditional communities, closer in to the main parts of a town, to schools, parks, transportation, etc. Older houses will be situated on larger parcels of land. In some cases buyers may prefer an older house in a particular location, which can be modernized or expanded. In effect, use the existing house as a base to build a unique property for their lifestyle.  In general terms, existing houses tend to be less expensive. Existing houses are likely to come complete with items that you won’t have to purchase to make them livable, like blinds, landscaping, built-ins, etc. When you purchase an existing house, you know how much the property has appreciated over the years, and in effect you have an index of sorts, which measures the community’s marketplace appeal. You also will likely have lower property tax rates.  Also, many older home properties aren’t required to pay for local bonds that are associated with newer housing developments such as schools, parks, or road/transportation improvements, new water and sewer lines, etc.

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First Time Buyers should look at fixer uppers

First-time home buyers who want to purchase an affordable home may want to take a hard look at the many fixer-uppers out there on the market today.   In the past, the first-time home buyers were more willing to purchase older and more basic type houses, and even those that needed repairs, in an effort to save money and break into homeownership.  It seems like the last decade or so, the first time buyers are out to get the biggest and the best.

It is important for first-time homebuyers to remember that by considering a fixer-upper, or older home in need of some repairs, for their first home purchase, they can build equity over time, and sometime much faster, and then later move up and into their second-stage home that better reflects their expectations.

Buyers looking for affordability who go with the fixer-upper option should get the home professionally inspected to determine what fixing up is necessary, and certainly not bite off more than they can chew. Even homes that need a basic face lift, like paint, carpeting, landscaping, window treatments and other cosmetic touches, can cause the home owner to come out with big savings. Homes that may require professional upgrades cost even less, but the buyer has to weigh the discounted price against the cost of the improvement. 

Homes nearer job centers cost more because of the added value of reduced transportation costs and time (which is money) spent commuting.  However, buyers can enjoy the best of both worlds if they purchase a cheaper home away from job centers, but in a transit oriented community or home development, or other distant community that offers low-cost public transit to work. Carpooling, trip sharing and car sharing communities boost the idea of affordable housing.  This is a dynamite idea that should really be looked into by many first time buyers.

Take the time to find affordability. Discounts were more likely available from homes that had been on the market for 90 days or more; homes for sale that were owned by long-time owners; homes for sale from flipping investors down on their luck; and properties owned by we-want-to-sell-real-estate banks who now know what it means to be careful what you wish for.

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