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The Cost of Homeownership
One of the common errors made by people buying homes is to think that the only cost
will be monthly payments of principal and interest on the mortgage. It is important
to keep in mind that there are other items which have to be paid which add up to a
substantial outlay. Before you buy, be sure that your income is sufficient to cover
all of the cost which you will have to pay.
First, you must have enough cash to make a downpayment, if required. (The
downpayment is the difference between the purchase price and the amount of
the loan which the lender will make to you.)
Then, in addition to the downpayment, you will have to pay for a number of
items commonly called "closing costs." These costs, which can be substantial,
must be paid in cash at the time the loan is made.
The term "closing costs" generally refers to all charges paid for obtaining the
mortgage loan and transferring real estate title. While the sharing of closing
cost items between buyer and seller may be agreed to in the contract of purchase,
all or a significant part of the closing costs are frequently paid by the buyer.
Among the items which the buyer may be required to pay for are title search,
title insurance (a lender's policy and, if desired, a buyer's policy), survey,
credit report, appraisal fee and related compliance inspection fee, if needed,
recording fee, State and/or local transfer taxes, a VA funding fee, discount
points and a lender's origination fee (usually 1 percent of the loan amount;
for example, $500 on a $50,000 loan). The purpose of the origination fee is
to cover certain costs to the lender in making the loan, if these costs are
not paid itembyitem by the borrower.
Certain other costs, technically referred to as "prepaid items," must be paid
by the buyer at the time of loan closing. Among such costs are the buyer's
share of the current year's real estate taxes and the first year's premium
for hazard insurance. These costs also become part of the recurring costs of
homeownership due each year.
If you are purchasing a home in an area where title insurance is the method used
to assure good title to the property, it is advisable to inquire about the
existing title insurance policies (lender's and seller's) on the property,
for it may be possible for you to obtain a policy at a reissue rate. The
reissue rate is usually lower than the original rate and may be available
for both lender's and buyer's policies. Reissue rates are usually limited
to the reissuance of a policy on the same property by the same title company
that insured title in the present owner within 10 years. Some title insurers
will extend the reissue rate to policies written by other companies. Your
seller will probably have the information about the date, type, and amount
of any existing policy or policies that you need to support a request to
the title company for the reissue rate.
Topics in the VA Quick Guide to Buying or Building Homes:
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