A home may be one of the largest purchases you ever make. But before you make an offer, it’s important to understand the up-front and continuing costs of buying a home, including the down payment, closing costs, mortgage payments and insurance. As an experienced mortgage loan officer, I’ve helped many homebuyers find home loans that are right for their situations. Here are some of the costs to consider:

Down payment When you borrow money for a home, you are required to contribute some of your own money toward the purchase – this is the down payment. The amount you need varies depending on the type of mortgage you choose, the purchase price of the home and your financial situation. As a general rule, conventional mortgage loans require a larger down payment – usually up to 20% – than government mortgages, such as FHA loans. Bank of America has mortgage loans and programs to fit a variety of budgets, including affordable financing options that require as little as 3.5% down for an FHA loan.

Closing costs In addition to your down payment, you will usually need to pay closing costs. For budgeting purposes, plan about 3% to 5% of your loan amount for closing costs, depending on where you live, the loan you choose and your closing date. In some cases, you can finance certain closing costs as part of your mortgage loan, and sometimes you can negotiate to have the seller cover some of the closing costs. When you apply for your loan with Bank of America, you’ll get a Clarity Commitment®, a one-page summary highlighting key loan information, in easy to understand language.

Mortgage payment When you make an “amortized” mortgage payment, your payment goes toward the principal and interest of your loan (a “P&I” payment). The principal is the remaining balance of your loan, and the interest is the cost of borrowing the money. Typically, all or most of your interest payments are tax deductible. (Consult your tax advisor for details.) In addition to being obligated to paying the principal and interest payments on your mortgage loan every month, there are other monthly obligations. In some cases, particularly when you put less than 20% down, a portion of your overall monthly payment can be set aside in an escrow account held by the lender (a “PITI” payment: principal + interest + taxes + insurance). The money in this account is used to pay property taxes, mortgage insurance, hazard insurance and flood or earthquake insurance when they are due.

Mortgage insurance If your down payment is less than 20% of the home purchase price, you can expect to pay some form of mortgage insurance. Home loans that are insured let you buy a home with a lower down payment than the lender would otherwise require. Mortgage insurance costs vary, depending on the amount of your down payment and the type of loan you select. Two government agencies — the Federal Housing Administration (FHA) and the Veterans Administration (VA) — provide insurance for certain kinds of mortgage loans. Mortgage insurance is also available from private companies. I can help explain your options.

 

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