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About The Homebuying Process
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Consider the Up-Front Costs
By getting pre-qualified, learning about interest rates, Annual Percentage Rates (APR), and completing your Housing and Debt Ratio Worksheet, you’ve determined the amount of home you can afford. Have you considered all the upfront costs you must pay in cash? Major upfront costs include the down payment, closing costs, prepaid expenses, and mortgage insurance when applicable.
The Down Payment
Different mortgage types require different down payments. Freedom Mortgage offers a variety of mortgage programs with minimal down payments, and some with no down payment at all. We also work with community organizations for down payment assistance. A 5% down payment on a $90,000 house would be $4500.00.
Mortgage Insurance
If your down payment on a conventional loan is less than 20%, you may be required to get mortgage insurance (MI). Mortgage insurance helps the lender recover some of the money lost if you fail to make your house payments. This mortgage insurance cost will be in addition to your monthly payment. If you obtain an FHA loan, you may be required to pay a one-time upfront mortgage insurance premium (MIP) and a monthly mortgage insurance payment.
Closing Costs and Prepaid Expenses
Closing costs can include fees such as the origination fee, appraisal fee, credit report fee, underwriting fee, title insurance, recording fees and others.
Prepaid expenses include the daily interest on the loan (from the date of closing to the end of the month), one year’s hazard insurance (or homeowner’s insurance) premium and escrows for property taxes, hazard insurance and mortgage insurance, when applicable.
Sources for Down Payment and Closing Costs
- Share draft or checking accounts
- Savings accounts
- Stocks, bonds, etc.
- Cash value of life insurance policy
- Retirement accounts (401(k), IRA, Keogh)
- Gift from family member
- Unsecured loan or grant from a governmental entity, employer or non-profit organization
- Loan secured by the borrower’s own assets
- Down payment assistance programs
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