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Steps Prior to Buying

 

  • Mortgage Approval
    You need to speak to a loan officer and determine what you are qualified to buy. Among other things, your income, debt, credit scores and available cash will be reviewed. Once your loan officer understands your financial situation and goals, he/she will advise on the best loan program for you and give you an approval letter. The loan program you chose will specify the amount of cash needed for a down payment, but you’ll also need cash for closing costs.
 
  • Cash Needed to Close
    Here’s a summary of closing costs to expect
    • Transfer and Recordation taxes runs around 1.1% of sales price.
    • Title Insurance is about 0.5% of sale price
    • Loan Escrow costs are about ~1%
    • Expect to see at least a couple hundred dollars for loan processing costs.
 
​​Add it all up and 2.5 to 3% of the sales price is a good rule of thumb. So looking at a quick example. A 20% down payment for a $500,000 purchase price would require $100,000 for the downpayment. Add another 3% in closing costs and you would need around $115,000 in cash at settlement.That’s a lot of cash. Other loan programs require less cash, so talk to your loan officer and shop around. And, it’s also possible to negotiate a credit from a home seller to pickup closing costs as well.
 
  • Affordability
    Your loan officer will base your loan approval on your ability to pay the mortgage, taxes, and insurance. Also budget for basic maintenance, landscaping and repairs. You know know what you’re qualified for and what fits your overall budget.
 
  • Should you buy?
    Lastly, now’s the time to question if you should buy. If there’s a good probability that you will move in the next 2 to 3 years, then renting is likely a better option. Buying and selling costs here are very high. That $500,000 could easily cost you $50,000 in buying and closing costs that’s gone forever. Over 4-5 or more years, even with modest home appreciation, the financial benefits of home ownership typically more than compensates for the high costs of buying and selling.
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