Homeowners Insurance

Category: Finance, Mortgages.

Most people focus on the current mortgage interest rates when shopping for a home loan.

When you are making plans to purchase a new home, it is important to consider the big picture of all the fees associated with getting a mortgage, rather than focusing solely on interest rates. Interest rates are certainly important, but they do not represent the only significant expense associated with financing a home. Before you can decide just how much house you can afford to purchase, you need to look at an overall summary of mortgage fees so that you will have a clear understanding of all the expenses involved. Down Payment. Many factors can impact the total amount of money you need to borrow, as well as the final out- of- pocket requirement for your monthly payment. Most home buyers will be required to make a down payment in order to be considered for mortgage loan approval.

Typically, home buyers are required to make down payments ranging from five to 20 percent of the home s purchase price. The amount of money an individual is required to put down may vary significantly based on a variety of factors, including: the cost of the home, the applicant s credit history, the borrower s qualification for down payment assistance programs, and many other variables. Prepaid Interest. Prepaying interest allows you to exert some degree of control over the due date for your monthly payments. The day you close on your home loan, you will be required to pay the interest that will accrue on the loan between the current time and the day the first monthly payment is due. Many people are able to include the initial prepaid interest in the total amount financed, which keeps them from having to pay this amount out of pocket at the closing table.

It makes sense to utilize prepaid interest to make sure that your payment due date is convenient to your income schedule, but there is no benefit to postponing the first payment simply because you are allowed to do so. Keep in mind that the longer you put off your first payment, the more prepaid interest you will have to pay at the time of closing. Homeowners Insurance. No mortgage company will allow a sales transaction to take place without being certain that insurance coverage is in effect the moment the title transfers into the mortgagee s name. When you finance a home, the premium for your first year of homeowners insurance coverage is due at the closing table. As with prepaid interest, many home buyers who are able to do so elect to include their initial homeowners insurance premiums in the total amount financed. As long as you have a mortgage on your home, your lender is likely to require you to make escrow payments toward your property taxes and homeowners insurance premiums.

Escrow Account. This money goes into an escrow account, which the lender uses to make sure these important expenses are paid when they are due. Title Insurance. Requiring escrow accounts protects the lender, who has a vested interest in making sure the property is sufficiently insured and remains free of tax liens. One of the most important components of a home loan transaction is the process of verifying that the seller has the legal right to transfer title of the home to the buyer. Sellers are typically responsible for paying for title research, since this work is required to verify that they do in fact own the property and have a legal right to transfer it to the buyer.

In addition to verifying that the title of the home is clear prior to closing, it is advisable to protect the home from future title problems tied the actions of past owners with a title insurance policy. Homebuyers, usually pay for, however the accompanying title insurance policies, which protect them against potential prior claims to the home s title that might surface once the transaction has been completed. Other Closing Costs. Mortgage lenders typically require title insurance policies as a condition of closing. A number of additional expenses must be considered in any comprehensive summary of mortgage fees. Additionally, most lenders require property appraisals, and termite inspections, surveys prior to approving a loan. For example, when title to a property is transferred, a warranty deed must be created, and the changes to the title of the property must be recorded.

The fees associated with these legal and real estate services are part of the closing costs for a home loan. They can be paid for by the buyer or seller, based on the terms agreed upon in the purchase agreement.

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