For most people, buying real estate is something you do once or twice in your lifetime, giving you few opportunities to familiarize yourself with the process. You are swamped by mountains of paperwork to sign, a strange new vocabulary to deal with, and numerous fast-talking sales people – from real estate agents to mortgage brokers – who smile, point and tell you where to sign.
It’s an exciting time, but it’s all too easy to lose track of what you’re paying for and how much everything costs. Aside from the mortgage, there are numerous charges lumped into ‘closing costs’. Let’s look at four home loan fees to be on the lookout for; this may save you a few hundred dollars.
What are Closing Costs?
Closing costs are the several dozen potential expenses associated with purchasing and financing real estate. They are categorized as “recurring” and “nonrecurring.”
Recurring costs not only get paid at closing, but also on a monthly basis thereafter, and include real estate taxes, homeowners insurance, and, if you’re putting less than 20% down, private mortgage insurance (PMI). These expenses need to be paid in advance at the time of purchase, so put them in an account to cover next year’s obligations.
Nonrecurring costs are also paid at closing. These include:
- Application fee
- Loan fees such as appraisal, credit report, and underwriting fees
- Any lender-required inspections
- Broker’s service fee
- Federal Housing Administration (FHA) fees
- Veteran’s Administration (VA) fees
- Title charges
- Land survey
Most Common Fees
The four most common home loan fees are:
- Application fees
- Appraisal fee
- Private Mortgage Insurance
- Prepaid Interest
How much should they cost?
The Federal Reserve Board provides some general guidelines for how much these fees should cost:
- Application fees range from $75 – $300 (including the cost of a credit report for each applicant)
- Appraisal fees range from $300 – $700
- Private Mortgage Insurance can be up to 1.5% of the loan amount prepaid and between 0.5 – 1% of the entire loan amount annually.
- Prepaid Interest varies depending on loan amount, interest rate and number of days that must be paid. $300 – $700 is not that uncommon.
How to Save:
- Try and make a larger down payment to avoid PMI. If you can afford to make a 20% down payment, do so. PMI is hard to cancel, can be expensive, and offers no real benefits.
- For lower appraisal fees, direct your loan officer to work with local appraisal companies. Local appraisers have a deeper knowledge of the surrounding neighborhood and will likely be more readily available for the home inspection, to speed your appraisal process.
- Negotiate with the seller to reduce closing costs. They may be willing to pay your application or appraisal fee for a better deal.
- Look for special deals on lenders websites. You might be able to apply for free or save on the cost of a credit check. Try to apply direct if possible, rather than going through a broker. You can compare deals online and go straight to a lender if there’s a particular deal you want to apply for. Don’t let a pushy salesperson force you into a bad deal.
In order to take proper control of your life it is very important that you keep a good control on your finances. This means that you must take good control even on your debts and make efforts towards paying them off.
Some tips that you may follow in order to take control of your debts are as follows.
1. Lowering the debt to income ratio: It is very important for you to lower your debt to income ratio. This is because the debt to income ratio is a reflection of your financial state. Most lenders will check your debt to income ratio along with your credit report. In case you have a very high debt to income ratio you may be denied loans. This will have a very bad effect on your financial life. Thus, you are to try and lower your debt to income ratio if the ratio is more than 30%. This will help you take control of your financial life.
2. Setting up a debt repayment plan: If you want to get out of a financial crisis and maintain a healthy financial life, then you will have to pay off your debts. In order to do so you must set up a debt repayment plan. The purpose of formulating such a plan is that it helps you to concentrate all the extra amount of money that you have and use it to pay off your debts. Another advantage of setting up a plan is that the process of debt repayment will be faster than it would have been otherwise.
3. Paying off all your old debts: One of the ways in which you will be able to come back on track is by trying to pay off your old debts. In order to do so you may approach a single company at a single time and gradually pay off your debts. As you keep on paying off your old debts you will be improving your credit score as well. This helps your financial situation greatly.
4. Stopping the usage of credit cards: It is very easy to get into credit card debts because you will not be able to realize that you are sinking into debts until it’s too late. Thus, when you face a financial difficulty and want to take control of your finances, then you will have to stop using your credit cards.
These are a few things that you can do in order to pay off your debts and take control of your financial situation.
It seems like everyone is extremely busy nowadays – especially this time of year (you might have noticed how long it has been since I published a post. In fact, I’ve been too busy to even read my BFN email lately – I apologize if you’ve written me an email lately but haven’t received a response yet!). Parties, Decorations, shopping, travel (or preparing for visitors), cooking, shopping, and doing all those end of year financial tasks that I’m positive my readers take care of each year! Oh, and did I mention shopping?
Well, for those of us who like to do as much shopping on-line, in the comfort of our own homes, in comfortable (and warm) clothes, at whatever time of day is convenient (last year my pregnant wife did most of our shopping in the middle of one night when she couldn’t get to sleep!), I’d like to point out an upcoming event that might hold a great deal of interest for you- Free Shipping Day 2010!
Free Shipping Day this year occurs later this week – Friday December 17th – and it is pretty much what it sounds like it is. According to the website, FreeShippingDay.com, “On Friday, December 17, more than 1,000 participating merchants will offer free shipping with delivery by Christmas Eve in the continental United States.” In fact, the website currently states that more than 1300 merchants are participating in Free Shipping Day.
These include big name merchants such as Sears, Ann Taylor Loft, Office Max, Toys R Us, and so on. For those with kids (like me) you might be interested to know that Melissa and Doug is participating. For those who play around musically (like me) you might also be interested to know that Guitar Center is participating. Ok, I’m not going to list all of them!
So, if you are still scrounging around for those little minute gifts and don’t have the time to actually leave your house and scrounge around for them, you might want to check out the participating merchants. Hopefully you can get that perfect something (or that list of perfect somethings) and still get it shipped in time for Christmas without paying more for shipping costs than you do for the actual gifts!
Friday is the first day of October but it is also the first day of the “10 Day Give.” If you are not familiar with it, the 10 Day Give is a challenge conceived by Bob over at ChristianPF.com. Its purpose is summed up succinctly as a way to “get our minds off of ourselves and start thinking about how we can help others.”
If you read the title of the post, you know that this is the third annual 10 Day Give…so if you haven’t done it before, this is the year! And if you have participated previously, keep the momentum going! I was a bystander the first year but did participate last year…only I didn’t do a great job of actually helping others. I didn’t “actively participate” all 10 days so this year I’m trying to do a better job.
So, I guess I will say that this post serves as my challenge to you (and even more so to me) to participate in this year’s event. So what does that all mean? Well, head on over to the 10 day give site to get more info and sign up but it’s pretty much what you already think it is. For 10 days starting October 1st, try to give something to someone each day (that’s it? yep, that’s it…pretty simple). It could be money but it doesn’t have to be. It could be a gift but it doesn’t have to be. Sure, you could buy someone a coffee or lunch but you could also give someone a gift for no reason or do something for someone or spend your time with someone. Get creative…get inspired…get motivated…and get going (No, actually, wait until Friday…just kidding).
First stop: head over to ChristianPF and find out more information about the 10 Day Give and add your name to the list of participants.
PS: Most of this post was actually written to inspire and motivate myself…but if inspires and motivates anyone else then all the better!
It always surprises people to learn that about 30 percent of the tenants of self storage facilities are small businesses. I am not sure why — businesses need, if anything, more storage than the average family. I find that many of our small business tenants have turned to self storage either because they need to minimize the overhead costs for their business, and must keep the official retail or office space small or home-based, or because they need a simple way to merge storage and shipping. Small businesses that need to arrange their own regular shipping or local deliveries often prefer to rent space at a facility that offers moving trucks for rent as well. That way, the business does not have to invest in a delivery truck (which then has to be stored as well, in addition to needing maintenance, insurance, and licensing).
The obvious example of an entrepreneur using storage space is an online retail business, such as an eBay store. However, I find that many entrepreneurs are using self-storage units in ways that are not so obvious:
Watercraft Detailing & Winterization: At one of our North Carolina facilities that offers winter boat storage, I met a man who told me that he figured out that he had a budget for space for a boat cleaning and repair business, but only for a few months out of the year. He was delighted to learn that self storage units do not have to be rented year round — they can be rented on a month to month basis, or only when you need them. He now uses a self storage space at a facility near a marina to offer boat cleaning and maintenance to boat owners who are about to put their boats in storage for the winter. He offers the service for two months in the fall. Then he packs up his tools and takes them home — he needs the space primarily for the boats he works on, as the tools themselves are fairly compact. In the spring, he rents another unit and offers the same service to boat owners who are taking their boats out of storage.
Wine Delivery: I chatted with a northern California business owner who is the middleman between wineries and local businesses and wine collectors. She needed trucks, but only occasionally, to transport wine. It streamlined her business considerably to be able to transport wine via truck to a climate-controlled facility, and to unload the wine and return the truck simultaneously. Then she rented the truck again later, when she went out to make deliveries. She was glad to be able to cut costs on shipping, since she also had to comply with state regulations related to shipping alcohol.
Hand Crafted Signs: An Oregon woodworker who rented a self-storage unit last year told me that he was glad to find a facility that also had trucks for rent. He produces custom handmade wooden signs for local businesses, and then delivers them. If he can, he deliver the signs using his own car, but occasionally he has a sign that is quite large and must be moved using a truck. In addition to using the trucks to deliver his signs, he told me that it is very nice to be able to rent one occasionally when he needs to bring in new materials, or when he participates in art fairs over the summer. For art fairs, he not only loads quite a few of his latest signs, but he also brings shelves and tables to display them on, and a large tent (in case of rain). The rest of the time, though, he tells me that he doesn’t need a truck — nor does he need to be budgeting part of his business income every month to pay for parking, maintenance or insurance.
Computer Solutions: Some of our tenants, on the other hand, have their own trucks, but they need a secure place to park them because they keep their trucks full of expensive equipment. One of our Chicago units is rented by a business that does IT consulting for larger corporations. They travel to sites where businesses are having trouble with their computer networks (in this recession, many companies have laid off their information technology (IT) departments). When they travel to a business site, they bring a van full of computers that can run diagnostic tests on a system. They also bring commonly used replacement parts, network cables, and the like. But they don’t want to park that van, full of electronics, out on the street. Moreover, it’s easier for the “Geeks” — there are two of them — to drive to our self storage facility and park in our parking lot, which is usually not full because most tenants don’t stay all day. Then they take the van out and drive to the site where they will be working for the day. As a result, they not only get affordable security for their business equipment, but they also save on parking for their private vehicles. I thought it was an ingenious way to solve the perennial Chicago parking problem.
Sometimes business owners have to think creatively to stay out of debt. I used to think that anyone starting a new business would have to go into debt just to have the start up capital to provide a place of business, equipment, and/or inventory (depending on the business). But I’ve come to realize that it is possible to start a business with very little capital. No one wants to think that their business is going to be the one to fail, but if your business does fail, you will be far better off walking away from it free and clear — rather than with a mountain of debt. I’ve grown to admire entrepreneurs who refuse to let the excitement of a new business sway their judgment when it comes to personal finance. In my experience, those entrepreneurs who stick to their principles become more than just successful businessmen and women — they become leaders in their community. And we need leaders like that — leaders who have a strong sense of personal responsibility, and who will take the motto “borrow from none,” and apply it whenever possible to our state and local governments.