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BUYING A HOME -
Financing Your New Home (continued)
4. If your down payment on your home is less than 20%, most lenders will require you to purchase Private Mortgage Insurance (PMI). PMI provides for payment of your mortgage if you default. If you have a good payment record, when your mortgage balance becomes less than 80% of the purchase price of the house or the appraised value at time the loan was obtained, whichever is less, you can request the mortgage provider to remove the insurance, and reduce your monthly payment by the amount of the insurance premium. In any case, under today’s regulations, when the mortgage balance gets to 78% of value, the mortgage provider must remove the insurance, if you are current on your loan.
5. Often, during the loan approval and closing process, you will be offered the opportunity to purchase credit life insurance that will pay off the mortgage in case of your death or perhaps disability. This is usually not a good insurance buy, and generally has higher insurance premiums than regular term insurance. To protect your family from losing the home in case of death, consider buying a sufficient amount of term life insurance and disability insurance. It will be cheaper coverage. Look under the “Life & Disability Insurance” heading of the “Home Finance” section for more information on insurance alternatives.
6. Often, wherever you get your mortgage (even from a large bank), your mortgage will be sold to another mortgage provider, resulting in your loan payments being due and payable to another company. This is not an event that should cause you concern. The terms of your loan will not change and your loan will not be called early. You will simply make the agreed upon monthly mortgage payment to another party. If you make your payments on time, there should not be any issues.
Closing the purchase of your home is really not a difficult process at all, but you do need to pay attention. In many states, one attorney will handle the closing, representing both the buyer and seller. Sometimes you may choose to employ your own attorney, separate from the seller’s attorney, although this is not usually necessary. In other states, a real estate attorney is not necessary to close the transaction. The closing company or title company handles the whole transaction. You may or may not feel you need your own attorney. In any case, remember the following:
1. Through the process of obtaining your loan and getting ready for the closing,
you will have received an estimate of all closing costs and fees. Review this carefully
and make sure your attorney, mortgage provider or closing company explains all estimated
charges to you. Make sure you really understand and agree, and all your questions
are answered to your satisfaction. A couple of the larger charges will be taxes
charged by state and local governments. There is nothing you can do about these.
There will also be a charge for title insurance that is required by your lender.
This title insurance covers only the lender, not you. So, make sure there is also
an additional charge for title insurance that covers you, the homeowner. The cost
o this title insurance should be less than the lender’s coverage since it is essentially
an add-
2. There are also several other charges that will be on your estimated closing statement. There will be probably be a charge for mortgage origination and other fees, an appraisal fee, survey fee, etc. There will also be an apportionment of charges usually paid by the homeowner, including real estate taxes, association fees, and perhaps some utility fees. Make sure these numbers represent the portion that the seller has paid in advance for time periods after the closing. Finally, most mortgage loans require an escrow account for the payment of real estate taxes and homeowner’s insurance. There will likely be charges on the closing statement for advance payments to the escrow fund. Make sure the people conducting the closing explain all of these charges clearly.
3. In order to help ensure there are no misunderstandings at closing that would delay the closing, you should receive a draft of the final closing statement prior to the actual closing. It is very important that you review this statement and ensure it is accurate. You will be surprised at how often the closing statement has errors, many of which will cost you money if not corrected. Make sure you understand everything. If you think something is wrong, or a fee has been included that you have not previously agreed to, contact the attorney or closing company, and tell them you believe there is a problem that needs to be addressed. Don’t be shy about asking last minute questions and making sure everything is accurate. Please note the amount of money you will be responsible to pay at closing, over and above any funds supplied by the mortgage company.
4. On the day of closing (but before closing), or perhaps the prior day, make sure you walk through the home you are purchasing to make one last inspection to ensure everything is in order. This should include making sure items that you have purchased are still there, the house is in acceptable condition, and the seller has a last chance to explain to you how various items in the house work. At this visit, make sure you get copies of all appliance literature the seller has, all maintenance contracts still in force, a list of all companies that have recently worked on the home or its systems, plans for the house if available, etc. You will receive all keys to the house at the actual closing.
5. At the actual closing you will need to review several documents that you have to sign. Take your time and read the documents and ask questions if you do not understand anything. Make sure you review the closing statement one more time to ensure there are no changes since your previous review. Also, make sure you bring the funds necessary (usually in the form of a cashiers check) to settle any monies owed over and above what is received from the mortgage company. Once you sign all the documents, the house is yours, as are all of the obligations. Just make sure you know what you are signing, and get copies of all closing documents.
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