Michael Holigan: The first big decision you'll make when buying a home is how much money to put down. A down payment effects your equity, taxes, insurance and monthly payment. Tom and Stephanie Somers felt they should be conservative. They put down the minimum. In most cases that's 3% to 5% of the selling price.
Tom Somers: Right, I mean, it came down to, we didn't know how long we would be in this first house, if it would only be a couple of years, or if it would be 5 or 10, and we really didn't know how much equity we wanted in this house originally, or really what was the right thing to do from a...
Stephanie Somers: Or what we were doing.
T.S.: Yeah. So we thought, well, let's just put down the minimum we have to to get the house and we'll work with the monthly payments later.
M.H.: Less money down means more cash left in the bank. Some people find this reassuring, in case of medical emergencies or job layoffs. Although a bigger down payment means more equity in the home and lower monthly payments. There's good arguments for both sides. You have to decide what's comfortable for you. But a down payment is just one part of buying a new home. On a $100,000 loan, you'll have to come up with about $2,000 for closing costs, which include inspections, surveys, and in some cases, title policies. There's also prepaids to consider. Add $1,000 or so for advance payments on taxes and home owners and mortgage insurance. And there is a 1% loan origination fee which goes to the lender. That's another $1,000. As a result, on a $100,000 loan, you'd have to come up with another 4% or $4,000 before you can close the deal.
S.S.: Well, what you pay for your house isn't what you pay for your house. I mean, the selling price is this, but by the time you add in closing costs and everything else...which we didn't know going into it either.
M.H.: Before you close on your loan you should be given a good faith estimate by your lender. Check the closing costs, the prepaids, any points you might pay to lower you interest rate, and the origination point. Now, in some cases, the seller or the builder are allowed to pay part of those costs for you, but it needs to be above board and your lender needs to know about the arrangement.
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Episode 31 1996 - 97 Season
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