Home Buying – the Money Part

At the outset, let me say that I am not a loan officer or a mortgage specialist. I am a Realtor, and as such, I come across buyers who are bewildered by the money part of buying a home.

 

Terms like closing costs, down payment and earnest money fly around them, and they are totally foxed. Not to be gender-biased, but 50% of buyers (you know who I am talking about) just nod knowledgably, I might add, when talk veers around to financing the home. Then, after that show of familiarity and proficiency, it’s too late to ask what these terms actually mean.

 

So… here in a nutshell are terms, meanings and where they all fit in.

 

Term	How much	Type	When	What is it
Earnest Money	$500 - $2,000 depending on the price of the home	Personal Check (unless property is a foreclosed one)	Paid while writing an offer. The check is deposited when the offer becomes a contract	It shows you are serious about buying the property
Down Payment	·        $0 for VA & USDA loans ·        3 – 3.5% of sale price for FHA loans ·        5 – 20% for conventional loans	Certified check	At closing	Your ‘skin’ in the purchase. Deducted from the sale price. The amount depends on the type of loan.
Closing Costs	Depends on type of loan. Maybe 2 – 5% of sales price.	Certified check	At closing	Costs of getting the loan, title search and attorney fees. Can also include VA and other fees.
Mortgage	The actual amount of the loan (sale price minus down payment)	Your bank sends certified funds to seller	At closing	The amount you owe on the house.
PITI	-	Personal check	Every month	Principal, interest, tax and insurance that you pay your mortgage company

 

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Check out all homes for sale in Columbia and Lexington at www.homesincolumbiasc.net

Knee-jerk Reaction by Home Mortgage Interest Rates

With the Fed’s announcement last week that there may be a tapering of its bond purchase program sooner than later, stock market indices reacted by dipping by a few hundred points. A stock that I had bought with careful thought also took a dive! As an aside, the minute I buy a stock (a meager 100 shares), its price will go down!

With the Fed's announcement, home mortgage interest rates jumped up. This was to be expected – interest rates had been ridiculously low at around 3.5% for over a year. According to Freddie Mac, interest rate for 30-year fixed mortgages took ‘its biggest leap in 26 years’ from 3.93 percent last week to 4.46 percent!

"Higher mortgage rates may dampen some housing market activity but the effect will be muted by the high level of buyer affordability, and home sales should remain strong,” says Frank Nothaft, Freddie Mac’s chief economist. 

I don’t see how there can be a higher level of affordability. For the same monthly payment of principal and interest, home buyers will now afford a slightly smaller home (or lower priced home). But what will happen is that home buyers who were vacillating will be galvanized into action with the fear that interest rates may go up further.

 

With all the knee-jerking that’s going on, we might as well be watching the cancan at the Moulin Rouge!