Qualifying and being approved for a mortgage are only part of the financial responsibility of buying a home in Las Cruces. There are a host of closing costs that, as a buyer, you should expect. Affordability is a topic on the minds of today's buyers, so researching each of the following costs, large and small, is important.
Down Payment:
This amount ranges depending on the cost of your home, but many financial experts recommend a down payment be at least 20 percent of the total cost of the house. The reason is that it often helps eliminate "PMI - Private Mortgage Insurance". If you cannot reach the 20% needed to eliminate this insurance, ask your lender what it will add to the monthly payment.
Private Mortgage Insurance:
According to the Federal Reserve Bank of San Francisco, "PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home's value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI." PMI protects your lender if you default on a loan, something that weighs heavily on the minds of lenders in today's economic climate.
Credit Report and Score:
Before you even think about buying a home, you need to verify the accuracy of your credit report and score. You may access your credit report three times a year for free at annualcreditreport.com, but you generally must pay to view your credit score. This costs around $20 - $30.
Home inspection:
It is imperative that you get a home inspection. Even newer homes may have hidden budget busters, such as termites, mold, or shoddy electrical work. Chances are your offer, unless you are buying "as is", has a clause that allows you to back out of the deal if the home inspection comes back unfavorably. A home inspection takes a few hours, during which you should be present, and costs around $300 to $500. We also seriously recommended that if the inspector finds any potential red flags, you have enough extra time before the inspection deadline, and extra money set aside, to schedule additional inspections from certified experts such as HVAC, plumbing, electricians, etc. This is especially important to consider when buying a distressed home such as a foreclosure where the homeowner isn't present to provide information about the condition of the home.
Loan Origination and Points:
You may have agreed to pay "points" in order to get a lower interest rate. Think of this as pre-paid interest. For each point purchased, the loan rate is typically reduced by 1/8%. An origination fee is what you might have to pay the lender to write and process your loan. This can be up to several thousand dollars. When considering if the lower interest rate is valuable, ask yourself how long you will be in the home. The general rule of thumb is that if you plan on staying in the home longer than 6 years you will make the money you pay to lower the interest rate back. Ask your lender for specifics according to your potential mortgage.
Appraisal:
An appraisal protects your lender from investing in a property that is over-priced. That means if the home appraises for $200,000, but the seller wants $225,000 ... you will only be able to get financing for $200,000. An appraisal also helps you to know the real market value of the home you are interested in. In New Mexico we generally see appraisals costing between $500-600 each.
And Finally:
Finally you will have the title company closing costs which are about $250 and the mortgage title policy which is about $130.
The good news? Your lender will provide a "good-faith estimate" of your expected settlement costs. These are only a few of the many costs associated with closings. Planning ahead for these expenses is important, and it is another reason to examine whether or not you can truly afford to buy a home at this time.
Still have questions? Email me at evelyn@homeslascruces.com or download our free in-depth home buyers guide!
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