We all agree, purchasing a home will be, for most of us, the largest purchase you will make in our life. You have found your future home, arranged for financing and are now waiting for the closing date. But to many people’s surprise, there are other monies that will need to be disbursed before or on the closing date.
Some of the upfront costs you should plan on paying when purchasing a home include appraisals, inspections, earnest money, lenders fees, title company fees, and attorney fees. It is vital that you plan for these fees – speak to your real estate professional or your lender who will be able to outline and estimate all of these costs for you. The total cost of these various expenses and fees can run into the thousands and even the tens of thousands of dollars. It pays to be prepared.
You must also be careful of the 100% mortgages or no-money down loans. A no-money down loan does not mean that there aren’t any costs associated with the loan. In reality, these types of loans allow the buyer to borrow 100% of the purchase price of the home however the buyer is still responsible for the numerous other costs mentioned above.
You should also keep in mind that you will have to pay a portion if not all of that year’s property taxes. Typically, property taxes are called on and required to be paid in full as the home closes. A buyer, upon closing the home, will be called to pay his/her share of the annual bill as it is pro-rated. You may want to enquire about the property taxes of a specific house, or neighborhood, before signing the purchasing contract. Some neighborhoods are taxed more heavily than others.
There is however a way of “avoiding” having to pay some or all of closing costs. As a borrower, you do have the right to ask a seller concession to cover your closing costs and pre-paid items. This makes it so you do not have to come up with any money at all for closing costs.
A seller concession is worked into the purchase agreement and the seller will end up paying for some or all of the closing costs. The seller concession is either a flat fee or a percentage of the loan amount. This is a fairly common practice, particularly in depressed real estate markets.
As for pre-paid items, they generally consist of pre-paid interest and escrows. Many people run into difficulty reading and understanding the multiple costs that are involved with purchasing a home. Because of this, do not take any chances and talk to a loan consultant or mortgage broker. This will help clarify your financial obligations.
Purchasing a Home is an exciting adventure. Don’t let your fear of the unknown spoil this joyous event. Being prepared and well informed will avoid you being shell-shocked when the time comes to paying the bills. The more informed you are, the better prepared you will be for the many upfront costs associated with buying a home.
Mira Novosel
http://www.articlesbase.com/real-estate-articles/closing-costs-and-other-fees-associated-with-purchasing-a-home-401240.html
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#1 by doosookoo on May 13, 2010 - 8:04 am
Can you apply 401k money towards a new home's closing costs?
You can pull $10,000 out of your 401k to go towards a new first home, without paying the 10% penalty. (I know it’s a bad idea, so spare me the replies telling me you should never pull out your 401k savings.) What can that $10,000 go towards? Is it only the down payment? Or can you use it for closing costs? Loan fees? Appraisals? Or any of the other expenses directly associated with the purchase?
#2 by Doctor Deth on May 13, 2010 - 1:06 pm
you would have to do a 401k loan to the maximum allowed first and then if that’s notenough, apply for a Hardship withdrawal, which must be approved by your employer and the 401k administrator – I believe you would still have to pay income taxes on the withdrawal portion, plus early withdrawal penalty-10%, you just say it’s for down payment
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#3 by mcmdcak on May 13, 2010 - 1:08 pm
The $10k "Penalty Pass" applies on IRAs not 401k.
You can borrow from most 401k plans ( depending on the plan rules) BUT that loan will count against you on your mortgage application.
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#4 by digdowndeepnseattle on May 13, 2010 - 1:10 pm
as prior poster said that 10k penalty exemption applies only to IRA’s and not 401k’s. But, you can take a hardship for the home purchase and use it for all of the reasons you mentioned. Anything directly associated with the purchase….basically if it’s listed on the hud statement then you can take it. Keep in mind that you can also add the taxes and 10% penalty and take that out too. So hud+10% penalty+taxes and then have them withhold 30% for federal income tax. If you need 10k have them take $14,500 and withhold $4,500. That way there won’t be a suprise come tax time.
And no you don’t have to do a loan to maximum amount first. You simply have to say that the loan itself will create a hardship. If that’s not the case (loan doesn’t present a hardship) then all you have to do is take out the maximum number of loans allowed by your plan in the minimum amount. ex: if you need that 10k and your plan allows two loans and the minimum is 1k then take two seperate 1k loans and have them paid back over the shortest time you can afford. Just apply for the loans first then apply for the hardship.
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third party 401k plan administrator for 15 years.
#5 by Emo on May 13, 2010 - 1:12 pm
Check with your plan administrator for the options avaiable under your plan. Some plans will allow you to take a loan and/or hardship for the purchase of the primary residence. Your plan administrator should let you know of any restrictions when it comes to taking money out for the puchase of a primary residence. If there are no restrictions, I do not see why the monies cannot cover what ever cost you need to pay to purchase your house (excluding mortgage payments).
If you take the $10,000 as a loan you will not be subject to income tax and 10% penality, however you will have to pay it back. Since it is for the purchase of a primary residence you should be able to extend the term of the loan past the 5 year maximum.
If you take the $10,000 as a hardship you will have to pay income tax on this money. Since it is a hardship, you do not have to withhold taxes when you take it out (only distributions eligible for a rollover are subject to the 20% manadotry withholding, hardships are not eligible for rollover), but you will have to pay the income tax when you file your tax return. If you receive a payment before you reach age 59-1/2 and you do not roll it over, then, in addition to the regular income tax, you may have to pay an extra tax equal to 10% of the taxable portion of the payment. The additional 10% tax generally does not apply to (1) payments that are paid after you separate from service with your employer during or after the year you reach age 55, (2) payments that are paid because you retire due to disability, (3) payments that are paid as equal (or almost equal) payments over your life or life expectancy (or your and your beneficiary’s lives or life expectancies), (4) dividends paid with respect to stock by an employee stock ownership plan (ESOP) as described in Code section 404(k), (5) payments that are paid directly to the government to satisfy a federal tax levy, (6) payments that are paid to an alternate payee under a qualified domestic relations order, or (7) payments that do not exceed the amount of your deductible medical expenses. See IRS Form 5329 for more information on the additional 10% tax.
If a plan allows for both loans and hardship distributions, most plan administrators will require you take a loan first then take what else you need in the form of a hardship distribution.
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