This is an amount that a buyer pays up front that is applied directly to the purchase price of a house. Today in some cases you can get 100% loans, meaning no down payment. More common is 5% down, 10% down, 20% down and more. These down payments are based on a percentage of the purchase price.
Even with no down payment, buyers should expect to pay other fees at a closing, known as prepaid items. Examples of prepaids are shown below.
INTEREST ADJUSTMENT
A cost associated with new 1st mortgage loans when closing is on any day other than the 1st day of the month. The FORMULA used to calculate this cost is as follows:
(Loan) X (Rate) / (360) X (the number of days from and including the day of closing through the last day of the month.
HOMEOWNERS HAZARD INSURANCE
The purchaser must have a full years policy in effect at closing, then 2 to 3 months paid at closing to establish the escrow account (if escrow is required). Quick rule of thumb quote for insurance - $5 per 1000 of loan amount.
PRIVATE MORTGAGE INSURANCE (PMI)
This insurance covers the loan and protects the lender from taking a loss. It is required on conventional loans exceeding 80% loan to value ratio (LTVR). May be paid by purchaser or seller. Can be partially paid and have the remainder rolled into the loan amount. For FHA loans it is called the Mortgage Insurance Premium (MIP) and for VA loans it is called a Funding Fee. Cost vary, check with your lender for quotes.
These months refer to the month in which the purchaser makes his/her first payment. The numbers refer to the number of months of property taxes that must be escrowed at closing. (Based on taxes being due in August)
FEBRUARY 8
MARCH 9
APRIL 10
MAY 11
JUNE 12
JULY 13
AUGUST 14
SEPTEMBER 15
OCTOBER 4
NOVEMBER 5
DECEMBER 6
Negotiable; may be paid by seller or buyer. These are cost involved that a lender would not have if we didn't apply for a loan. Made up of numerous items including but not limited to attorney fees, title search, loan origination fees, recording fees, etc. Should not exceed 3.5% of the loan amount on a small loan (100k or less) and should be less on a higher loan amount.
DISCOUNT POINTS
Not always applicable. May be paid by buyer or seller. Equates to interest paid up front. One discount point equals 1% of the loan amount.
