Entering into escrow on a home can be both exciting and stressful. The excitement comes from knowing you are close to moving into the new home. The stress comes from issues that will arise. You probably spent a good bit of time getting disciplined to save money for your home purchase. You need to carry this financial discipline through the escrow period or you could run into problems -- budget for Closing Costs -- Property Taxes, Prepaid Loan Interest and Home Insurance Premiums.
When you decided it was time to purchase a home, you went through a number of steps to get your finances in order. You probably reviewed your credit report, cut down on credit card balances and reigned in your spending. A monthly budget was probably also an item you stuck to, probably with some aggravation. Once you have an offer for a home accepted, it is important that you keep budgeting for the closing costs associated with the purchase. Here are a couple of odd little fees that can show up and drive you nuts if you are not careful.
Being required to pay property taxes can be a nasty little surprise. After all, you do not even own the home yet! The requirement, however, comes because of the nature of how property taxes are paid. They are not paid every month, so the seller has prepaid the taxes beyond the period they will own the home. They will want that money back! You can negotiate this point as part of the purchase, but you need to be aware it is out there.
Prepaid Loan Interest
Prepaid loan interest is an ugly little surprise for many first time home-buyers. The lender will often require you to pay the interest that accumulates between the day the loan is funded and the day you are actually scheduled to make your first loan payment. Many people mistakenly believe they have roughly a month before they have to start paying. This is rarely the case, and the sudden requirement to pay a hundreds or thousands of dollars can be a nightmare. If at all possible, you should try to get the lender to fund the loan as close as possible to the actual closing date, even on it. Try to avoid closing the loan on a Monday. The lender will have to fund the loan the previous work week, which means interest will be growing.
Home Insurance Premiums
Homeowners insurance is something you are going to need and most people expect as much when buying a home. If you are not informed, however, you will be surprised at closing when you find out you have to pay the full premium for the first year of the policy. Depending on the value of your purchase, this can add a couple hundred dollars to thousands of dollars onto your closing costs. Again, it is important to budget for this cost when putting funds together prior to purchasing a home.
If you are going to purchase a home, you are going to have to pay the above items at closing. Make sure you budget for them to avoid running into cash flow problems. Closing on a home can definitely be aggravating with all the costs you have to pay. But I can assure you, it will all be worth it when you walk into your new home the first time :)