When purchasing a home there are three major expense categories a buyer must address before they can become the owner of a new home. The major categories are: down payment, prepaid expenses and closing cost. Once the buyer has made the decision to purchase a home, the first thing he or she needs to do, is visit their lender. At this time, the borrower may need to provide financial documentation to lender for loan pre-approval. Once the lender has pre-approved the borrower, the borrower should receive a Good Faith Estimate from the lender. The contents of this statement are broken into four parts: closing cost, pre-paid expenses, dollar amount to be brought to the closing table, and estimated monthly mortgage payment. Some of the expenses included in closing cost are: appraisals, attorney fees, title insurance and other associated fees for acquiring the loan, and some of the items included in pre-paid expenses are: pro-rated interest on loan, homeowners' insurance premium and homeowners' association fees. As a buyer proceeding through the negotiation phase of the transaction, feel free to ask your realtor to request an updated version of the Good Faith Estimate. Finally, be sure you fully understand all the expenses on the statement. If you do not understand certain items on the statement, have either your realtor or lender explain.
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