What are Closing Costs?

That was one reason why foreclosures were so common. FHA established the amortization of loans, which meant that people got to pay an incremental amount of the loan’s principal amount with each interest payment, reducing the loan gradually over the loan term until it was completely paid off. On the next page, we’ll break down the components of the modern monthly loan payment and explain the important concept of amortization.

This “balloon” payment can be a killer. Essentially, these homeowners borrow against the equity in their homes, but they don’t have to pay the loan back as long as they don’t sell their homes or move. Three agencies of the federal government work with lenders to offer discounted rates and loan terms for qualifying borrowers: Federal Housing Administration (FHA), which is part of the U.S. These loans are designed for homeowners age 62 and older who need an inflow of cash, either as a monthly check or a line of credit. If you can’t flip or refinance the home in five years, you’re out of luck. Reverse mortgages actually pay you as long as you live in your home.

What if you have an expensive hobby or have plans for something that will require a lot of money in five years? Your lender doesn’t know about that, so the $1,400 mortgage it says you qualify for today may not fit your actual budget in five years — particularly if you don’t see your income increasing too much over that period. Take a look at this calculator to see how much house you can afford based on your current income.

Title search fees — A title search ensures that the person saying he or she owns the property is the legitimate owner. A title company closely examines public records such as deeds, records of death, court judgments, liens, contests over wills and other documents that could affect ownership rights. This is an important step in closing your loan because it assures that there are no outside claims against the property. The fees charged for title searches, usually between $300 and $600, are based on a percentage of the property cost. Title insurance (https://bangkok.thaibounty.com/2020/02/23/top-ziniza-place-hotel-bangkok-reviews/) — If the title company misses something during the title search, you’ll be glad you have title insurance.