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10. What Are Discount Points?
Discount points allow you to
lower your interest rate. They are essentially
prepaid interest, with each point equaling 1% of the
total loan amount. Generally, for each point paid
on a 30 year mortgage, the interest rate is reduced
by 1/8 (or .125) of a percentage point. When
shopping for loans, ask lenders for an interest rate
with 0 points and then see how much the rate
decreases with each point paid. Discount points are
smart if you plan to stay in a home for a longer
length of time since they can lower the monthly loan
payment and the difference will add up over several
years. Points are tax deductible when you purchase
a home and you may be able to negotiate for the
Seller to pay for some of them.
11. What Are My Closing Costs?
Your lender is required by law
to provide you at loan application a Good Faith
Estimate of all costs involved in closing your
loan. The typical costs involve the following:
- Escrow closing
fees
- Loan Origination Fee
(approximately 1% of loan amount)
- Recording fees
- First year of homeowner’s
insurance
- Interest (paid from the
date of closing to the end of the month,
e.g. if you closed
on the 15th of the month, you would have to
pay interest from the
16th to the 30th)
- First premium of mortgage
insurance (if applicable)
- Prepayment of reserve
accounts (usually 3 months) for property
taxes and
homeowner’s insurance
- Title insurance
- Lender loan fees, such as
document preparation, tax service, etc.
12. What is Title Insurance?
Note: This is for
general information only. If you have any specific
title questions or concerns, you should consult a
title officer to understand your title policy
clearly.
A title
insurance policy is a guarantee by a title company
that a thorough investigation of the title to the
property has been conducted and that you have been
notified of any outstanding claims to the property.
The title insurance company reports any defects in
the title in the form of a title commitment so that
these matters can be corrected. It is important you
know of all the claims on the property and have them
resolved and declared away prior to you taking title
to the property. The title commitment will
carefully detail what items of encumbrance are not
covered by the policy. You can then either get
these items resolved or bow out of the transaction.
Title insurance covers matters that occurred before
the policy’s effective date, but were discovered
later. Your policy will detail what is covered,
what is not covered and the effective date.
Title insurance is issued by
the title company when they are certain the property
is free from all liens, encumbrances, interests,
etc., and the insurance guarantees this. This is
done so the title can be legally transferred to the
Buyer to be used as security for the lender’s
funds. This is why the lender requires title
insurance. Your lender has an interest in knowing
you and the lender are the only parties with claims
to the property.
The title insurance company
thoroughly searches the public records to uncover
any unpaid taxes, mortgages, judgments against
previous owners, easements and other court actions
or recorded documents which can affect title to the
real estate. The insurance also provides protection
against any defect in the public record such as
forgery, similar names, error in the records, etc.,
and protect against any undiscovered or unrecorded
claims that may arise in the future.
When title insurance is issued
the title insurance company accepts the
responsibility for any and all claims on the
property prior to your purchase if they do not find
the claim or call it to your attention prior to your
purchase of the property. That responsibility
includes defending your title in court if necessary
(at their expense) or bearing the cost of settling
the claim (if it proves to be valid) in order to
protect your title and keep you in possession of
your property.
Unlike
other forms of insurance, the original premium is
your only cost as long as you or your heirs own the
property. There are no annual payments required to
keep your owners title insurance policy in effect.
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