When one is buying a property, here are four things to consider:
- Down payment
- Closing costs
- Pre-paid interest
1. Down Payment:
0% Down with VA or USDA
3.5% – FHA
5.0% – Conventional
10% – SBA commercial
20% – Non-owner occupied
25% – Apartments
30% – Commercial
30% – No income documentation needed
50% – Land
2. Closing Costs:
Discount Points – To buy the rate down to a lower rate by paying a once only, upfront fee is called points. One point is equal to 1% of the loan amount.
Title Company Fees – This is the fee associated with the title company searching the title. This fee encompasses the costs to research any outstanding leans against the property, buyer, or seller. The title company also acts as an escrow company, an unbiased third party to collect and distribute funds.
Underwriting Fee – Fees associated with the lender underwriting the loan.
3. Pre-paid Interest:
Mortgages are due on the first for the previous month as opposed to rents for the upcoming month. A lender will collect up to 30 days’ worth of interest to get into sync with the new payment. This means one can have up to about 60 days until the first payment if the loan closes at the beginning of the month.
One year’s worth of fire/hazard insurance will be collected up front. If one borrows more than 80% of the value, then the lender will want an additional 2 months of fire insurance and 2 months of mortgage insurance. Also, they will collect from 1-8 months of property taxes, depending on the month of the year the loan funds.