Purchasing a new home is a big undertaking. There are a lot of players and a lot of moving parts. Obviously, home buyers want to be aware of all of the costs that can be expected along the way. Beyond obtaining a mortgage, there are some additional fees associated with buying a home and particularly for a first-time home buyer, some of these fees might require a bit of explanation.

Every home sale is different, so buyers should work with their lenders and their real estate agents to determine what closing costs they can expect to pay. Here are just a few possibilities:

Mortgage application fee. While the buyer sometimes pays this to the lender up front, it might also be rolled into the closing costs.

Credit report. Like the mortgage application fee, this payment is sometimes made by the buyer at the outset of financing negotiations, but it can also be included in closing costs.

Other lender fees. In addition to application and credit report costs, lenders sometimes charge additional fees to research a buyer’s loan eligibility and execute the loan.

Appraisal and inspection. Both a professional home appraisal and a licensed home inspection can be required by lender in order to obtain financing; these processes determine home value and condition, respectively. These expenses are usually assumed by the buyer and may be included in closing costs.

Title exam and title insurance. A title exam is conducted to verify that there are no competing claims against a home that might cause problems in the future. This exam verifies that the property is free of claims or liens so that the title can be legally transferred to the new owner. Title insurance is an assurance that the property title is valid.

Brokerage commissions. These fees are usually paid by the seller to the real estate agent for marketing the property and negotiating a sale with the buyer.

Documentation costs. Attorney, escrow, and closing fees associated with the preparation of legal documents are sometimes paid by the buyer, sometimes by the seller, and sometimes shared, depending on the terms agreed to in the sale.

Wire or courier fees. These are expenses associated with transporting documents.

Recording fees. These fees are a payment to the entity in charge of land records for the creation of an official record of the property exchange. Recording fees may be assumed by either the buyer or the seller.

Transaction or document tax. Usually the seller is responsible in paying this legally required excise tax so you should not be concerned with this when it comes to your closing in Massachusetts.

Discount points. Sometimes referred to simply as “points,” discount points are a form of prepaid interest on a loan. Buyers may choose to pay points at closing in order to lower the interest rate on the life of a loan.

Closing costs are specific to where a sale takes place and the negotiations specific to the sale, so there is no “cookie cutter” answer to what is included in the closing costs of any given sale. For additional information about what might be included in closing costs, buyers should consult their lenders, agents, and real estate attorneys prior to the close of sale so there are no surprises on closing day.

Would you like to know more? Visit www.alavibraza.com for more information.

Ali Alavi, Esq.
Boston Office:
20 Park Plaza, Suite 454
Boston, MA 02116
Milford Office:
284 Main Street
Milford, MA 01757
T: (877) 55-ABLAW (552-2529)
F: (877) 318-3192
C: (508) 400-6162
E: aalavi@alavibraza.com
W: www.alavibraza.com

By: G. M. Filisko

By doing your homework before you buy, you’ll feel more content about your new home.
Most potential homebuyers are a smidge daunted by the fact that they’re about to agree to a hefty mortgage that they’ll be paying for the next few decades. The best way to relieve that anxiety is to be confident you’re purchasing the best home at a price you can afford with the most favorable financing. These seven steps will help you make smart decisions about your biggest purchase.

1. Decide how much home you can afford.
Generally, you can afford a home priced two to three times your gross income. Remember to consider costs every homeowner must cover: property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care if you plan to have children.

2. Develop your home wish list.
Be honest about which features you must have and which you’d like to have. Handicap accessibility for an aging parent or special needs child is a must. Granite countertops and stainless steel appliances are in the bonus category. Come up with your top five must-haves and top five wants to help you focus your search and make a logical, rather than emotional, choice when home shopping.

3. Select where you want to live.
Make a list of your top five community priorities, such as commute time, schools, and recreational facilities. Ask your REALTOR® to help you identify three to four target neighborhoods based on your priorities.

4. Start saving.
Have you saved enough money to qualify for a mortgage and cover your downpayment? Ideally, you should have 20% of the purchase price set aside for a downpayment, but some lenders allow as little as 5% down. A small downpayment preserves your savings for emergencies.

However, the lower your downpayment, the higher the loan amount you’ll need to qualify for, and if you still qualify, the higher your monthly payment. Your downpayment size can also influence your interest rate and the type of loan you can get.

Finally, if your downpayment is less than 20%, you’ll be required to purchase private mortgage insurance. Depending on the size of your loan, PMI can add hundreds to your monthly payment. Check with your state and local government for mortgage and downpayment assistance programs for first-time buyers.

5. Ask about all the costs before you sign.
A downpayment is just one homebuying cost. Your REALTOR® can tell you what other costs buyers commonly pay in your area — including home inspections, attorneys’ fees, and transfer fees of 2% to 7% of the home price. Tally up the extras you’ll also want to buy after you move-in, such as window coverings and patio furniture for your new yard.

6. Get your credit in order.
A credit report details your borrowing history, including any late payments and bad debts, and typically includes a credit score. Lenders lean heavily on your credit report and credit score in determining whether, how much, and at what interest rate to lend for a home. The minimum credit score you can have to qualify for a loan depends on many factors, including the size of your downpayment. Talk to a REALTOR® or lender about your particular circumstance.

You’re entitled to free copies of your credit reports annually from the major credit bureaus: Equifax, Experian, and TransUnion. Order and then pore over them to ensure the information is accurate, and try to correct any errors before you buy. If your credit score isn’t up to snuff, the easiest ways to improve it are to pay every bill on time and pay down high credit card debt.

7. Get prequalified.
Meet with a lender to get a prequalification letter that says how much house you’re qualified to buy. Start gathering the paperwork your lender says it needs. Most want to see W-2 forms verifying your employment and income, copies of pay stubs, and two to four months of banking statements.

If you’re self-employed, you’ll need your current profit and loss statement, a current balance sheet, and personal and business income tax returns for the previous two years.

Consider your financing options. The longer the loan, the smaller your monthly payment. Fixed-rate mortgages offer payment certainty; an adjustable-rate mortgage (ARM) offers a lower monthly payment. However, an adjustable-rate mortgage may adjust dramatically. Be sure to calculate your affordability at both the lowest and highest possible ARM rate.