Tips About the Financial Affairs of a Real Estate Transaction
The three most important components of any real estate transaction are:
Principal – The amount of money you are borrowing to buy the property. Based on the information you provide when you apply, your Benworth lender will tell you how much money they will loan you. This will help you determine how much property you can afford.
Monthly Payment – Your monthly payment will likely include principal and interest payments, and amounts for property taxes and various insurances. Your Benworth professional can help you estimate these costs so that you understand what your total monthly payment will be.
Closing Costs – Lenders charge several fees when closing a mortgage loan, such as origination, appraisal, document preparation and other fees. Ask your Benworth lender for a good faith estimate of these costs and ask for an explanation of any charge you do not understand.
Create A Personal Balance Sheet
A Personal Balance Sheet compares assets (which may include personal savings in a checking account, investments in stocks and bonds, owned items such as a car or real estate) and liabilities (which may include mortgage payments, credit card debt, automotive or other loans). It provides a snapshot of your net worth by detailing your assets and liabilities and helps you and your lender understand your entire financial picture and determine how large of a loan you can comfortably afford. CLICK HERE to access our Net Worth Calculator.
Mortgage Payment Particulars
A monthly mortgage payment typically includes:
Principal – repayment of the amount you borrowed from the lender.
Interest – rate charged by the lender to loan you the principal. Mortgage interest payments may be deductible on your annual federal income tax return (check with your tax advisor).
Homeowners insurance – payment to insure the property against loss from fire, smoke, theft and other hazards. In South Florida, hurricane/windstorm and flood insurance may also be required.
Property taxes – payment of the annual city/county taxes assessed on your property. Property tax payments may be deductible on your annual federal income tax return (check with your tax advisor).
Real Costs of Home Ownership
In addition to monthly mortgage payments, be sure you budget for these costs of home ownership:
- Utilities such as electric, water and sewer
- Garbage collection
- Cable television
- Phone and internet service
- Homeowner association or condo association dues that generally include upkeep and landscaping of common areas, maintenance of the community pool and, sometimes, cable television
- Interior and exterior repair and maintenance costs, including lawn, landscaping, pool and pool equipment
When purchasing a property, you need to be prepared to put down earnest money. It is usually an amount equal to 1-5 percent of the purchase price. You deposit your earnest money (usually in the form of a check or cashier’s check) in an account with your real estate broker or real estate attorney.
- If your offer is accepted by the seller, the earnest money becomes part of your down payment or closing costs.
- If your offer is rejected by the seller, your earnest money is returned to you.
- If you back out of a deal or you “change your mind” after the seller has accepted your offer, you may forfeit all your earnest money.