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To buy a home and qualify for a mortgage, you will need to make a down payment. Generally, you are not permitted to borrow money to use for a down payment, because this increases the amount of money you owe and affects your ability to make your mortgage payment. Even a loan from a parent or relative may be unacceptable to your lender.
One way to save for a down payment is to look for a lease with an option to buy arrangement. You and the seller agree that some of your rent payment will be credited toward the price of the house
if you choose to buy it after a specified time frame. If you don't buy the home, you're out the rent you paid during that period. Therefore, make sure you don't overpay to rent the house. The price of the home if you buy it and the rent are negotiated and locked in at the inception of the arrangement. A home owner who's having trouble selling his house is usually more inclined to agree to a lease with an option-to-buy arrangement.
Loan programs through the Federal Housing Administration (FHA) are sometimes a good alternative for first-time homebuyers, because smaller down payments are required. For more information, visit www.hud.gov/buying/#programs.
Closing Costs
Closing costs add to the cost of buying a home. These are the expenses you pay when the parties meet to transfer ownership of the property from the seller to you. Here are some of the closing costs you may encounter:
- Transfer taxes
- Prorated property taxes
- Title insurance
- Appraisal fees
- Attorney fees, if any
- Document preparation fees
- Private Mortgage Insurance, if applicable
- Home inspection
- Points
Points are a percentage of the loan amount that you pay at the closing. They might also be referred to as origination fees or by some other name.
Remember that some of these costs are negotiable. Also, the lender might offer to pay some of these costs in exchange for charging you a higher interest rate. One loan might have fewer points but a higher rate of interest.
As you comparison shop for the best deal on a mortgage, pay special attention to the APR of the loan. The law requires every bank to tell you the APR for all types of loans, not just mortgages.
Homeowner Expenses
Aside from your mortgage payment and closing costs, there are many expenses associated with owning a home such as:
- Property and school taxes
- Upkeep
- Maintenance fees to homeowners and condo associations
- Utilities
- Furniture
- Homeowners insurance
In some areas of the country, homeowners insurance may be extremely expensive and difficult to buy, because of natural disasters like hurricanes. You may also need to buy a separate flood insurance policy if you live in a particular area.
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