Closing costs comprise a large chunk of what you might have to pay for as a borrower and property buyer. Failing to factor closing costs into your budget can have a detrimental impact towards your ability to keep up with your mortgage payments. Here is everything you need to know about closing costs.
What Is It?
Closing costs, as the name implies, refer to the costs that a borrower must pay when he/she finalizes the purchase of a property, be it residential or commercial. While these costs can add up to a considerable sum, both parties involved in the transaction shoulder a portion of the closing costs.
What Fees are Involved?
The seller pays a number of the fees that make up the closing costs of a property he/she is trying to sell. These include the real estate broker’s commissions, which can easily reach up to six percent of the property’s purchase price. Other expenses included in the closing costs are your application fees, legal representative’s fees, and any discount points that are useable. Taxes are also tacked into a property’s closing costs, which can sum up to about 15 percent of the agreed-upon purchase price.
What is a Title Search?
Another common cost category you’ll encounter when trying to close on a property is title search. A third-party company performs a comprehensive background check of the property to make sure there are no undisclosed heirs and unpaid claims on the property being sold. Home buyers are also expected to pay title insurance fees, which basically covers the policy holder of any costs associated with ownership issues.
How Do You Minimize Closing Costs?
One way to minimize your closing costs is to pay cash for the property. You can reduce your total costs by as much as 1 percent of the property’s purchase price. You also effectively eliminate fees, such as loan origination and appraisal charges. You can also cut your closing costs, as a buyer, by foregoing the services of a realtor. Instead, deal directly with the owner. While this means more due diligence required on your part in order to make sure the transaction is completed properly, it helps you avoid the hefty commissions paid out to a realtor.
Make sure you fully understand your exact closing costs before you even sign any paperwork or give a confirmation to the other party involved. You can find a number of free closing cost calculators online that can help you determine your estimates.
The level of success you put into your career in real estate will determine the amount of success you enjoy. While this is basically true of any career path, there’s a more direct link between effort and success when you rely on commissions for your income. You should take the time to prepare for the other changes a career in real estate will bring into your life.
Plan Your Career
Once you undergo the necessary education to pass your licensing exam, you should take the time to create a specific path for your career in real estate. This will involve setting short-term goals for yourself. Each short-term goal should take you one step closer to achieving your long-term objectives. Your strategy should include a marketing plan and a system for covering your expenses. Keep in mind that you’ll essentially be an entrepreneur, so you should prepare for all of the expenses and responsibilities that any new entrepreneur faces.
Plan For a Period of Limited Income
If you can keep an hourly job as you get started as a real estate agent, you should consider the benefits of staying employed. Otherwise, you should have a modest nest egg upon which you can draw to support yourself as you launch your new career. Just as a new business struggles to turn a profit in the first three years of operation, new real estate agents don’t usually earn a decent income until they have established themselves in their local communities.
Choose a Niche
It will also help you find greater success as a real estate agent if you can focus your efforts into a specific niche. For example, you might have an interest in offices and business parks. By focusing your career on those specific types of properties, you can create a marketing strategy that targets entrepreneurs and small business owners. You’ll save time, money, and energy when you’re not spreading your efforts too thin.
Keep in mind that you will be your own boss even when you work for a brokerage firm. This means you’ll have to find ways to stay motivated and work more efficiently. Developing a strategy that you can follow on a daily basis will help you sell more properties. In addition to working harder, you should also look for ways to be more effective as you serve your clients.
Buying a home is a big goal many families have. However, a purchase that can easily reach six figures limits the ability of most people to pay cash. That’s why it’s important to figure out how to qualify for a home loan.
Gone are the days in which anyone could walk off the street and leave with a “liar loan.” Instead, it’s necessary to provide proof of income before qualifying for a home mortgage. Banks want to know that a borrower is likely to have the means to pay off a loan. Therefore, saving few pay stubs and having access to previous tax returns is a necessity. These documents will help lenders assess the relative ability of prospective borrowers.
Build A Good Credit Record
Banks will pull a borrower’s credit report before giving her a budget for buying a new home. This will have a list of outstanding debts, and it might also show some debts that are paid in full. Banks want to see that prospective borrowers have a relatively low debt-to-income ratio. Those who have high levels of debt before a mortgage will likely be riskier borrowers for the bank. Paying debts by the due date is the most important component of building a good credit record. It’s important to remember that those with higher credit scores will secure loans with lower interest rates.
There are some government-backed lending programs that allow borrowers to get into a home for no money down. However, these are not always the best option. They can come with mortgage insurance that’s intended to protect the lender while doing nothing other than raise the cost of borrowing for the borrower. Those who are able to put at least 20% toward the purchase of a new home will avoid mortgage insurance, and this will cut down on their monthly payment. Additionally, those who have a good down payment will have equity from the beginning. A borrower who puts no money down will have no equity to protect them from owing more than the value of their residence if the market drops.
A mortgage is a requirement for many families to purchase a home. Shopping around can be a good idea that can sometimes provide lower interest rates. However, the most important steps to take toward getting a mortgage are building a nice income and down payment while also working to achieve a high credit score. Those who pay attention to these goals will likely qualify for a mortgage with a relatively good rate.
With an ever increasing number of online tools available for home buyers, it can be easier than ever to buy a home without the guidance of a seasoned real estate agent. That still doesn’t mean it’s a good idea, however. This is particularly true for first-time buyers. There are just so many variables to buying a new home and so much that a seasoned real estate agent brings to the table. Here are three questions first-time home buyers should ask their agent.
- Where should I look?
When buyers begin to look at homes, they generally think about where they want to live in terms of commute times, walkability or maybe school districts. What they don’t always think about are things like tax rates, traffic, parking or zoning. Sometimes living on the north or the south side of a certain street can make a huge difference or living just a few blocks east or west may save you thousands of dollars or millions of headaches.
- What additional expenses can I expect?
It is a common misconception that owning a home is much cheaper than renting. The truth is, when you rent, your landlord is responsible for any number of expenses that suddenly become yours once you own your own home. These can include things like HOA fees, sewer, water and trash collection, property taxes, mortgage insurance and an entire plethora of upkeep and maintenance expenses. The big difference between owning and renting, however, is that all that money you spend on a home is building equity, while rent never will. By asking your real estate agent what additional expenses you can expect, you will have a much better idea of what you can realistically afford to spend on a mortgage.
- Would you buy this home?
Real estate agents have to walk a thin line between keeping their clients happy in the short term and making sure they will be happy with their purchase in the long run. Sometimes clients fall in love with a home that an agent can see a million problems with, but if that’s the home the clients decide they want, that’s the home the agent will help them get. Before you get too fixated on a home, ask your agent if they would buy it and why or why not.
If you want to start investing in real estate, you’ll probably start with homes in the low to moderate price ranges. This will help you build up some capital, but you won’t make a good profit until you start dealing in luxury housing. When you’re ready, it’s important to know where to find high-end homes that will earn you a better profit. While you can search listings, there are a few more efficient strategies for finding your next investment property.
Socialize With the Wealthy
In any career path, your advancement will depend as much on who you know as it does on your specific expertise. This is equally true when it comes to investing in luxury real estate. You can meet wealthy individuals by joining health spas, country clubs, and other places where the social elite are more likely to congregate. Developing friendships and acquaintances with the wealthy will give you the inside track on luxury real estate. You’ll be among the first to find out who will be selling their properties in the near future.
Provide a Service
The wealthy have unique problems that affect their finances, and they’re always looking for that special professional who can help them alleviate their concerns. Whether you prepare taxes, sell insurance, or have experience in the lending industry, you have skills that the wealthy need. By using those skills specifically to help the wealthy, you can create a niche career for yourself. Additionally, you’ll position yourself to learn about luxury home sales before they hit the market.
Host Seminars to the Wealthy
You can solve a problem for several wealthy individuals at once by hosting a seminar. The event should provide comfortable seating, good quality snacks, and a secluded environment where they can focus on your lecture. Instead of giving specifics for solving the problem, your seminar should focus more on why you’re qualified to solve the problem for them. You can give some generalized information, but you want to ensure they will still need to hire you by the end of the lecture.
You can also work with a real estate agent who deals primarily with luxury real estate. They can help you find high-end homes that are new to the market. An agent can also keep you informed about open houses to help you explore more properties in the market. This type of professional assistance can make your search easier and shorter.