Once you’ve agreed to buy a house, things would proceed quickly. You shouldn’t forget to budget for the closing costs during this time.
Budgeting For Loan Origination Fees And PMI
Closing costs involve those fees for miscellaneous events that are associated with home purchase. Even if you are purchasing a home for the first time, you are probably aware there are closing costs that have to be paid. Rarely, however, are you aware of just home much and how fast the can accumulate. If you have not budgeted for them, they can put a kink in the closing or even cause you to lose the home.
A couple of closing costs to keep in mind are origination fees for home loans and private mortgage insurance. The mortgage related costs are only a small part of the overall closing costs you can face, but deserve a closer look.
Origination fees for home loans can be a shock to first time buyers. Many people aren’t aware of them. Origination fees are charged by a lender for the services that were used to determine if the lender should give you a loan. For example, you’ll be charged by the lender for the fees for obtaining a copy of your credit report. You’ll even have to pay for the loan processing and loan document preparation. Sometimes, you have to pay for points, which are 1 or 2% of the total loan. On a $300,000 loan, the origination fees can quickly add up to thousands of dollars.
Private mortgage insurance, often called PMI, can also be a nasty little surprise. When we talk of PMI, we mean 20%. If the down payment for your home is less than this amount, then you’ll have to pay PMI. PMI is simply insurance that protects the lender should you default on the loan. It can cost up to hundreds of dollars, so be prepared.
Closing costs can really be a problem. You can deal with them better if you budget for them.