When it comes to buying a home, saving for a down payment should be part of your overall strategy to setting up a successful home sale. The next phase includes rounding up financial records, examining your spending habits, and setting up a budget that support your lifestyle.
When buying a home you can expect to pay a portion of the pruchase price up front, otherwise known as a down-payment of some sort. Plus, you should have a saving for closing costs, which are the incidential fees associated with buying a home.
The following list is an estimate of the closing costs that are associated with buying a home in NJ.
Typically closing costs are 3% of the purchase price, but can be more depending on a number of variables. The following list of fees/expenses will make up your closing costs:
- Loan fees (points, application fee, credit report)
- Prepaid interest
- Inspection fees (paid for out of pocket before closing $350-$750 depending on size of home and loan type.)
- Appraisal ($350-$750 depending on loan type and lender)
- Mortgage insurance (typically 1 years premium plus an escrow of 2 months)
- Hazard insurance (typically 1 years premium plus an escrow of 2 months)
- Title Search and Insurance (one time payment $900-1800).
- Survey $600-$700
- Documentary stamps on the note
- Prepaid taxes (typically 3 months of taxes is place in escrow for you at closing).
- Recording Fee
- Wire Transfers
- Flood Certification
- Attorney Review Fee, which ranges in NJ from $750-$1500.
How much down-payment is required? The down payment is usually expressed as a percentage of the overall purchase price of the home, and varies depending on the lender, the type of financing and amount of money being lent. In the past, the typical down payment was 20%, but in recent years lenders have been willing to offer conventional financing with as little as 5% down. U.S. Government financing programs, such as those offered by the Dept. of Veterans Affairs (VA) or the Federal Housing Administration (FHA), also require minimal down payments.
What is PMI? Typically, if your down payment is less than 20% of the purchase price, lenders will require you to carry Private Mortgage Insurance (PMI). This insurance protects the lender in case of loan default, and usually involves an up-front payment at closing, as well as a monthly premium. However, once you have paid off 20% of the loan, you can request the policy be canceled. Some lenders cancel the premium automatically, while others require you to make a request in writing.
Can I use a Gift? If you are having trouble saving enough money, many lenders will allow you to use gift funds for the down payment–as well as for related closing costs. The gift may come from family, friends or other sources, but remember that lenders usually require a “gift letter” stating the gift doesn’t have to be repaid. In addition, some lenders will also require you to pay at least a portion of the down payment with your own cash. Thus, if you plan to use gift money to purchase your house, ask your lender about their policies regarding gifts.
What is Earnest Money? Buyers are usually required to deposit earnest money with the seller when they make an offer. If the offer is accepted, the earnest money is then credited towards the down payment. The amount varies widely depending on the seller and local custom (In New Jersey, $1,000 is customary), but be prepared from the outset to have funds earmarked for this purpose.
Don’t forget closing costs. In addition to the down payment, you will also need to save for additional fees associated with the loan otherwise known as closing cost. These closing costs charges cover items such as title insurance, documentary stamps, loan origination fees, the survey, attorney’s fees, etc. When you submit your loan application, lenders are required to supply you with a good faith estimate of your closing costs. Some buyers are surprised by the amount of the closing costs, which can easily run into the thousands of dollars. Remember, though, that closing costs can be negotiated with the seller. For example, you may agree to pay the full asking price in exchange for the seller paying all the allowable closing costs or portion or percentage of your closing costs.
Post By Audeliz Angie Perez (160 Posts)
Angie Perez is a NJ Circle of Excellence award winning real estate agent for Weichert, Realtors in Edison. She sells anywhere from 12-25 houses per year on a consistent basis since 2005. Ms. Perez is primarily a buyer's agent on 60% of her real estate sales where she represents rental income investors, first time home buyers & trade up home buyers of 1-4 family homes within specific towns encompassing 4 NJ counties: Union, Essex, Middlesex and Somerset County. Many of Ms. Perez's clients appreciate her ability to negotiate favorable real estate deals for them. Many of her clients commented that her research abilities, her honesty, her knowledge of local market trends and her proficiency to manage multiple real estate transactions from start to close are some of the reasons why she was hired as their agent of choice. Please call, text or email Angie Perez to ask if she lists or sell in your town. If she can not help you, Ms. Perez would be more than happy to help or refer you to someone who can.
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