What You Should Know About a Certificate of Occupancy

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It’s very exciting when your real estate deal closes, but it’s imperative not to rush the process until you’ve dotted all your “i’s” and crossed all your “t’s”. There are a few key documents that need to be reviewed before you move in, including the certificate of occupancy (CO). Whether you’re buying an existing home or are purchasing new construction from a builder, obtaining a copy of this document is extremely helpful.

This unassuming little piece of paper is actually quite powerful and holds a lot of weight when it comes to legal protection, negotiating, and ensuring a home loan is approved.

So, what exactly is a certificate of occupancy, and why is it so important?

Certificate of Occupancy – Defined

You want to make sure that the home you move into is safe to live in, right? Well, a certificate of occupancy will verify this fact. Usually, these permits are issued by the city’s building authority and confirm that a particular property has been constructed and maintained according to local government standards. They’re typically first issued when a home or building is first built, and whenever title is transferred to a new owner, additional inspections are performed accordingly.

For new-construction homes, the certificate of occupancy will be issued to your builder after they’ve requested the permit to construct the house. Once the home has gone through and passed the proper inspection process, the certificate is then issued.

Every newly constructed home goes through a number of inspections throughout the entire building process to make sure that every phase is compliant with local building codes. These inspections generally cover things such as ensuring electrical and plumbing work is done properly, or that the home meets fire codes, to name a few. If the builder does not pass an inspection at any particular stage, then the builder legally cannot proceed with construction until the issues are resolved.

When the home construction is complete, a final inspection is done. At that point, a certificate of occupancy can be issued to the builder if the home passes, which should then be provided to the buyer at closing.

A certificate of occupancy also applies to existing homes that have been renovated by previous homeowners. For instance, if a new addition was constructed at some point in the past, a certificate of occupancy should have been issued after that work was done to make sure it was constructed according to building codes. If you are not given this document, it would be tough to decipher if the work performed was done properly and if the home is deemed safe as a result.

What Happens if There Are Issues With the Property in Question?

If you’re buying a brand new home from a builder, a certificate of occupancy is an absolute must. In fact, it should be part of the entire home buying package that you receive from the builder, as it offers proof that you’re not moving yourself or your family into a shoddy structure that could pose a hazard.

If you’re buying resale, then the seller should provide this permit to you before the deal is sealed. The seller will pay a fee to have the initial inspection conducted as part of the process of transferring title. The seller will also have to conduct any further inspections required by the local zoning authority before the permit is issued.

If the inspection comes back with issues that need to be resolved, you can negotiate with the seller. The ideal scenario would involve the seller making any repairs and paying for them before a settlement is reached, after which the property will be reinspected again to make sure the issues in question have been resolved.

However, you could also negotiate a lower price for the home to compensate for the costs involved in bringing the home back up to par yourself. As long as both you and the seller agree, a conditional certificate of occupancy can be issued, assuming the necessary work will be done once the deal closes.

If there is a problem with obtaining a certificate of occupancy, you could have problems getting approved for a mortgage and home insurance, as both entities will often require one before a deal can go through.

The Bottom Line

While the visual appeal of a home is certainly something that may attract you to a home and entice you to put in an offer, what’s more important is that the property is structurally sound and safe for occupancy. That’s precisely what the purpose of a certificate of occupancy is, and why you should obtain a copy for the home you’re planning to buy.

Can Your Homeowner’s Insurance Provider Drop You Because of Too Many Claims Submitted?

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If you want to ensure that you receive financial compensation should anything happen to your home or its belongings, then you absolutely need homeowners insurance. In fact, you probably won’t even be able to hold a mortgage if you don’t have a policy.

But once you take one out, it’s imperative that you understand all the ins and outs of your policy, including the number of claims that you’re allowed to make before you’re able to renew. Unfortunately, many homeowners are unaware that insurance providers have guidelines when it comes to this, and some have found themselves without coverage as a result of making too many claims.

Too Many Claims in a Certain Tie Frame Could Leave Your Home Uninsured

Every insurance company is different, and as such, they have their own guidelines in terms of the maximum number of claims before being able to renew the policy. Having said that, two claims is typically the standard limit of claims that can be made within a five-year time frame. That means insurance providers can actually deny your policy renewal if you go over that limit within that time period.

What’s the reason for insurance providers dropping you after too many claims? In the eyes of an insurance company, you would be considered high risk. At the end of the day, too many claims mean more money your provider would have to dish out to cover you. It’s simply bad business to agree to provide coverage for a home that’s just too risky – and too costly – to insure.

Even filing just one claim is complex, and the more claims you add, the trickier it gets. At the very least, a couple of claims means a hike in premiums; worst case scenario, you can get the boot altogether.

What Does the Law Say?

States have their own laws regarding the ability for insurance companies to deny renewal as a result of the number of claims that have been filed. In California, insurance providers are required to give homeowners at least one chance to renew their policy if their home is completely destroyed because of a major disaster (as opposed to destruction due to negligence).

That said, the National Association of Insurance Commissioners states that insurance providers can cancel a new policy for any reason within 60 days of issuance. Once this time period elapses, there has to be a good reason for the cancellation of a policy, such as nonpayment or fraudulent activity on your part.

You, on the other hand, have the right to cancel your homeowners insurance policy any time for any reason.

Is There Any Recourse For a Denied Policy Renewal?

If you’ve been denied coverage because of filing too many claims – or for any other reason – you should make an effort to call other insurance companies to try and get approved for a policy. Failing that, you may be able to seek coverage through state programs for insurance.

The Fair Access to Insurance Requirements (FAIR) plan provides insurance coverage to homeowners, but should only be used as a last resort after making an effort to get coverage in the private insurance sector. The type of coverage offered by a FAIR plan will be more limited compared to the average policy taken out with a private insurance provider.

Think Hard Before Filing a Claim

While some claims are absolutely necessary – especially if your home is completely destroyed along with everything in it – others might not be worth filing. For instance, if your $1,000 bicycle was stolen out of your garage, it wouldn’t be worth filing a claim. Let’s say your deductible is $500 – you’d be getting $500 back. But the fact that you now have a claim on record might not make that $500 worth it, especially if your premiums increase right after.

Before you file a claim, call your agent first, not the claims center. These professionals will be able to help you determine if filing a claim is the best idea in your particular situation.

Many times you may be better off paying to make repairs or substituting lost or stolen goods if the damages are not much more than your deductible. A general rule of thumb is not to file any small claims, but rather leave your claims for major catastrophes that cost in the tens of thousands of dollars or more in damages. You don’t want to use up your claims for minor situations and be left in the dust when it comes time for renewal.

Tax Benefits of Owning a Historic Property

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If you own a historic property or are considering buying one, there are more advantages than just unique and original architecture and design. There are also several tax incentives at the federal, state, and local levels that are put in place to encourage homeowners to preserve these historic properties and rehabilitate them appropriately rather than tear them down in favor of new construction.

Here are some ways you can take advantage of tax incentives if you’re the owner of a historic property.

Federal Historic Preservation Tax Incentive

The federal government of the U.S. offers incentives to encourage the rehabilitation and re-use of historic structures. While the government may be dishing out monetary incentives for such activity, it’s also getting money back in the form of improvements in cities. In fact, the Federal Historic Preservation Tax Incentive is one of the most successful and cost-effective revitalization programs in the country.

The catch? It’s not applicable to owner-occupied historic homes. Instead, it’s geared towards commercial buildings or income-generating private properties. However, if you have a home office or rent out part of your house, you can apply for the 20% tax credit for any improvements made to the income-generating space.

Once your property is a designated as historic, the federal government will hand out either 10% or 20% of the money you spend improving it (as long as the work proposed is approved).

20% Tax Credit – A 20% income tax credit is available for owners to rehabilitate historic, income-producing properties that have been certified as historic structures through the National Park Service. In order to be eligible for this 20% tax credit, a home needs to be at least 50 years old without many changes having been done to it over the years, and renovation expenses need to total a minimum of $5,000.

10% Tax Credit – A 10% tax credit is available for rehabbing non-historic buildings that were built before 1936 that don’t qualify for the 20% tax credit. In order to be eligible for this 10% tax credit, the building needs to be rehabilitated for non-residential use.

It should be noted that owners cannot take advantage of both credits – only one or the other.

About 1,200 projects to rehab historic properties are approved annually by the Technical Preservation Services, leveraging about $6 billion each year in private investment to improve historic homes and buildings all over the nation.

State Tax Credit

Owners who are looking for tax breaks for homes they actually live in should look to the state for monetary credits. Unlike the federal tax incentives that are only applicable to investment properties, many states – including California – offer incentives for preserving owner-occupied historic properties.

State governments are willing to hand out money to rehab qualifying historic homes in an effort to help revitalize neighborhoods. Since historic properties are often located in economic downtown areas, any increase in value of a historic home as the result of renovations can actually help boost the value of the surrounding area, which is why state governments are open to helping out.

In California, Bill AB 1999 was developed not long ago to speed up the process of preserving and renovating historic structures. It offers a 20% state tax credit to developers who choose to restore old structures listed on the National Register of Historic Places rather than demolish them. Again, this credit is extended only to income-generating properties rather than owner-occupied homes.

Private homes are eligible for smaller tax credits up to $25,000, as long as they can show that any improvements made to the property would have a positive effect on the surrounding community.

Other State Incentives in California

Most states in the country offer programs to lower state property taxes for historical structures, and in California, this is known as the Mills Act Property Tax Abatement Program. Property owners get reduced property taxes from the local government that grants the tax incentive in exchange for preservation of historic properties. If eligible, property taxes are then recalculated according to a specific formula under the Mills Act and Revenue and Taxation Code.

It should be noted that the criteria for eligible properties varies from one jurisdiction to another, and not every local government participates in this program.

The Bottom Line

Preserving and improving your historic property takes some capital, but luckily the government has programs in place to help out financially. In addition to these tax incentives, you may even want to check with a tax lawyer who’s experienced in dealing with local property tax incentives to see if there are any other grants or breaks that you can tap into to help with historic preservation.

One thing is for certain – tax rules for the preservation of historic properties are typically complex. Some incentives may be only application to investment properties only while others might encompass owner-occupied homes. As such, it’s important to speak with your accountant to verify precisely how you can take advantage of these tax incentives.

6 Questions to Ask Your Mortgage Lender

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Buying a house is most likely the biggest investment you will ever make, so before you dive head-first into the deal, you’ll want to have some questions answered about your mortgage. After all, you’ll be responsible for making good on your mortgage payments every month for years, so make sure you’re well advised about your home loan before you sign on the dotted line. 

When speaking with your lender, ask the following questions before you commit yourself to a mortgage. 

1. What Mortgage Type is Ideal For Me?

There are several different types of mortgages available, each of which is suitable for a specific type of borrower: 

• Fixed-Rate Mortgages

• Adjustable-Rate Mortgages

• Federal Housing Authority (FHA) mortgages

• Veterans Affairs (VA) mortgages

• Jumbo mortgages

• Interest-only mortgages

• Reverse mortgages

These home loans differ in the loan amount offered, the amount of down payment required, interest rate, payment type, and length. The type of mortgage that’s best suited for you can be determined after you’ve filled out a mortgage application and your lender has had the chance to assess your employment status, income, assets, debt, down payment, and other factors. 

2. What Rate Will I Pay, and Can I Lock it in?

The interest rate is a critical factor to consider, as it will have a huge impact on how much you have to pay each month in mortgage payments. Even a fraction of a percent can make a big difference. One of the first questions you need to ask your lender is what rate you’ll be assigned.

An initial quote will help you estimate what your payments will look like, as well as help you compare packages from different lenders when shopping around for a mortgage. Having said that, an initial quote isn’t guaranteed, unless you’re able to lock it in. If you believe that rates will rise shortly, locking in may be a good idea. Ask if your lender offers a mortgage rate lock, as well as any costs associated with extending the lock if it expires before your closing date.

3. What Are All the Costs Associated With the Mortgage?

The overall cost of your mortgage involves a lot more than just the loan amount that you have to pay back. At closing, you can expect to pay the following costs:

• Credit report fee

• Appraisal fee

• Title search fee

• Title insurance fee

• Homeowners insurance

• Taxes

Generally speaking, as a buyer, you’ll have to pay anywhere between about 2% to 5% of the purchase price of your home in closing costs. Knowing exactly how much you’ll responsible for paying is critical in order for you to budget accurately.

Luckily, you’ll be given a Loan Estimate (which has recently taken the place of the Good Faith Estimate) which details important information about the cost of your home loan, including the interest rate, monthly payments, taxes, insurance, how your rate may fluctuate in the future, prepayment penalties, and total closing costs for your mortgage. This three-page document must be provided to you by your lender within three business days of receiving your mortgage application. 

You’ll also be given a Closing Disclosure (which has recently taken the place of the HUD-1 settlement document) which outlines the final details about your home loan and its costs. This five-page document will include important pieces of information about your loan, including all your closing costs. 

Both of these forms are specifically worded using simple and clear terms to help make it easier for you to understand the terms of your home loan.

4. How Long Will it Take to Process My Loan?

Many borrowers can become anxious about the length of time needed to process their mortgage, as this can delay and even kill a real estate deal. It’s important to have a good idea about how long it will take before your application is approved when you’re trying to coordinate the sale of your current home with your new home purchase, or if you have a certain amount of time during escrow to get mortgage approval before the time period expires.  

Ask your lender how long you can expect the mortgage approval process to take. The answer you receive will depend on a few things, such as how prompt you are at submitting the necessary documents and how busy the lender is. Of course, there are some things that you should not do during this time that could delay your approval, such as taking out a new loan or switching jobs. Only after your mortgage has been approved should you consider making any big moves that could drastically change your financial situation.

5. What Documents Do You Require?

In order to make sure the mortgage approval process goes smoothly without delay, be sure to promptly submit all documents that your lender requires. In general, you can expect to have to hand in the following paperwork:

• Employment letter

• Income statements

• Information about your credit history

• Information on debts and liabilities

• Proof of assets

• Personal I.D. 

The sooner you provide these pieces of information, the sooner your lender can start working on your application.

6. What Are the Qualifications Needed For My Home Loan?

In order to be approved for a mortgage, you need to meet specific criteria, depending on the type of mortgage you’re applying for. All lenders require that borrowers meet certain requirements before approving a mortgage application. For instance, conventional loans require at least a 5% down payment, while FHA loans can only be used to purchase a primary home (as opposed to a vacation property). Your lender can fill you in on which types of mortgages you’re eligible for.

The Bottom Line

Having these questions answered will help provide you with a much clearer idea of what is required of you and what your financial commitments will be with your home loan. Considering the magnitude of a home purchase, it’s essential that you take the time to have all your pressing questions answered. Your mortgage lender will be happy to answer all your queries and discuss all of your options with you before closing on a deal.

6 Signs a Seller is Open For Negotiation

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As a buyer, the more you can get out of a real estate deal, the better, and that includes a lower purchase price. Having said that, any information you can gather about the seller regarding the motivations that lie beneath why they’re selling and how open they are to negotiate would be very helpful.

In sizzling-hot housing markets with a squeeze on inventory – which is pretty much the case all over the Golden State – it may seem obvious that sellers are the ones in control. However, it’s highly possible for you and your real estate agent to catch on to even the slightest hints that a seller is willing to negotiate.

Read on to find out how to spot any clues the seller may be more open to negotiating a lower purchase price and other components of your offer.

1. The Property is Vacant

If the home is vacant, that may tell you something about the seller; namely, that they’ve already moved out. If that’s the case, the seller may be more open to negotiating as they likely want to get the property off of their hands. Or, if there are packing boxes all over the place, they’re on their way out and may be more open-minded at the negotiating table.

The opposite may also be true, however. For instance, if the home shows really well and has been professionally staged, that may also be a sign that the seller is highly motivated, which can also mean you have some room for negotiation.

2. The Listing Price is Low

A really low price may be an indication that the seller really wants to get the home off the market sooner rather than later. In fact, it may even mean that the seller is more interested in getting rid of the home quickly than making a big profit. If that’s the case, you can negotiate.

On the flip side, there may also be a chance to negotiate with the seller if the listing price is really high, or more specifically, if the listing price is over market value. It’s possible that the seller is listing high with the assumption that buyers will go in asking for a discount right off the bat.

In either case, you may have some negotiating power.

3. Listing Buzzwords

Read the listing description very carefully. While sellers won’t directly blurt out that they’re willing to take a cheaper price, they may include specific buzzwords that will give you clues that they’re open to negotiation. Look for words and phrases like “priced to sell,” “needs TLC,” or “motivated.” Phrases like these could mean the seller wants to unload their home quickly, and if so, you may be able to snag a bargain.

4. Extras Are Being Offered

While getting a lower price is certainly a bonus, there are other components of a real estate contract that can be negotiated which could translate into savings. For instance, you could ask the seller to throw in all the appliances, a home warranty, the furniture, or even your closing costs, which can really add up. Just be sure not to be greedy and ask for too many extras, as this can have the opposite effect of what you’re trying to achieve. Prioritize your list and be sure to pick only what you really want.

5. The Listing is Lingering

Identify how long the listing has been up on the market. If it’s been lingering on the market for too long and hasn’t yet been snatched up, there’s a good chance that you can wheel and deal. Generally speaking, anything over 30 to 45 days on the market means the listing is stale. Of course, this number varies depending on the market in question. For instance, in really hot markets, it’s not uncommon for homes to be sold within a couple of days of being up on the market. 

6. The Sellers Want a Quick Closing

If the seller specifies a quick closing on the listing, it may just be that they need to pull their equity out of the home fast in order to put it towards a new home purchase, for instance. If the seller wants to close the deal quickly, you can negotiate a deal on the price.

The Bottom Line

Sellers obviously want the highest price they can get for their homes, while you as the buyer clearly want to get a deal. At some point, a middle ground needs to be reached in order for a deal to successfully close. But if you can discover signs that the seller may be open to discussion, you can put yourself in the driver’s seat at the negotiating table to effectively work down to a lower price, and even negotiate various other components of the offer.

How to Design a Family Room That Suits the Whole Family

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It’s not called a “family room” for no reason. This important space in the home is dedicated to serving as a retreat for everyone in the home whenever they feel the need to chill out, play, and just hang with loved ones. Based on this description of what a family room is and should be, it needs to be designed and decorated accordingly. High-quality family time should be the main focus when coming up with design strategies and blueprints that will create the perfect ambiance and functionality while still reflecting your personal tastes and style.

Keep the following tips in mind when designing a family room that the whole crew will love.

Choose Pieces With Relaxation in Mind

Take a moment to think about exactly what you and your family members will be doing in your newly-designed family room; namely, hanging out, relaxing and playing. With that in mind, consider the types of furniture that would be conducive to such leisurely activity.

Outfit the space with casual, comfortable sofas and chairs that don’t show stains very readily. Choose plush upholstery that won’t start feeling too stiff after just a few minutes of sitting on it. Ramp up the comfort factor with plush throw pillows and blankets, and don’t forget to add a coffee table or end tables where you can conveniently set your drinks or snacks down without having to get out of your seat.

Have Fun With Color, Textiles, and Textures

You want to have a family room with pieces that camouflage any fingerprints, spills, and crayon marks. The colors you choose can do wonders at masking these inevitable remnants of mishaps, so a white velvet couch is probably not ideal.

Go for colors that either stimulate energy or entice relaxation, such as reds or blues, respectively. Add some fun texture and textiles that will add some personality to the space. If you’re a little hesitant about adding bold colors and patterns to your space, start small by dedicating them only to understated accessories.

Let in Light

Ample light is crucial in every room in the home, and the family room is no exception. The more natural light you can let in, the better, so be sure to maximize the natural light coming in from your family room’s windows by hanging sheer shades that won’t block in light while still creating some privacy. You can also add darker, heavier shades on top that can be easily opened and closed as the need for additional privacy arises.

Add dimmer switches to allow you to adjust the ambiance in the room to suit your desired mood. Be sure to also include task lighting for things such as reading or homework as well.

Leave Enough Space For Play

Don’t overload your family room with furniture and decor – you’ll leave little room for some much-needed floor play, especially for younger tots. Dedicated areas for the kids to do the things they love without you being worried about them bumping into anything or knocking things over. Add just enough furnishings that will provide ample seating without covering almost every square inch of floor space. If your family regularly plays games, consider setting up a game table and chairs if the space permits.

Add a Personal Touch

Don’t be afraid to showcase who lives in your home, and the best way to do that is to hang family photos, the kids’ artwork, and other family artifacts. Out of all the rooms in the home, the family room is the ideal place to put items such as these on display to complement other accessories that decorate the space.

Don’t Forget About Traffic and Flow

The family room rivals spaces like kitchens and bathrooms in terms of foot traffic. Not only will you and your immediate family be in and out of the family room day in and day out, so will friends and other family members. Taking that into consideration, make sure that the flooring material of the space accommodates a lot of foot traffic. Hardwood floors are solid choices as they are easy to keep clean. You can always soften it up with an area rug that will also add a little flair to the floor.

Wall-to-wall carpeting is also a good choice in terms of adding warmth and comfort – just keep in mind that it’s a lot harder to keep clean compared to wood flooring and might not do much for the resale value of your home should you decide to sell sometime in the near future.

The Bottom Line

When designing a comfy, cozy, stylish family room in your home, be sure to consider exactly how the space will be used by each family member while still sticking to your tastes and style needs. If necessary, consider enlisting the help of a seasoned interior designer who can put you on the right path to the perfect design. At the very least, you can probably get some useful tips just from the consultation alone.

Loan Estimates 101

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Do you know how much your home loan will cost you? It’s a critical question that you need to ask if you’re going to be able to budget accordingly. Luckily, the answer to this can be found on the Loan Estimate, which recently replaced the Good Faith Estimate (GFE) as well as the Truth-in-Lending (TIL) disclosure statement under TRID guidelines.

Mortgage brokers and lenders are required by the U.S. government to supply the new three-page form to borrowers within three days of a home loan application. This gives borrowers ample time to review their statements and identify exactly how much their home loan will cost them in clear, easily-understood terms. As such, it will help borrowers avoid overpaying for a mortgage and sets forth the interest rate. Lower closing costs could help borrowers lower their overall mortgage payments, spend less in closing costs, or even afford a bigger home within their budget.

All lenders must use the same standard Loan Estimate and Closing Statement and are held accountable for the quotes they provide. This helps borrowers compare mortgage loans in order to make a more informed decision.

What’s Included in the Loan Estimate?

Within the Loan Estimate will be a number of crucial pieces of information about your mortgage, including the following.

Amount being borrowed.

Knowing how much you borrowed is obviously critical. This number should be located under “Loan Amount,” and if the amount is more than what you asked to borrow, it’s important to ask your lender about it. It’s possible that some of the closing costs have been included in this amount, but it’s important to inquire anyway. Knowing precisely what fees your lender is adding to your overall loan balance is essential.

Origination fees.

The amount that your lender is charging you in origination fees – which are the costs associated with the lender getting you the loan – will be included in your Loan Estimate. They will be broken down into mortgage application fees and underwriting fees and generally cost anywhere between 0.5% and 2% of the entire loan. This is a negotiable fee that you can wheel and deal with your lender, or you may even try to find a cheaper deal with another lender.

Interest rate.

The interest rate that’s tied to your loan amount can make a massive difference in the overall cost of your loan. Even the difference of a fraction of a percent can mean tens thousands of dollars in savings over the term of your loan. Make sure the rate stipulated on the form is the same as the one quoted by your lender.

Fixed-rate or adjustable-rate loan?

A fixed-rate mortgage comes with an interest rate that’s been set when the loan is originally taken out and won’t change over the life of the mortgage. An adjustable-rate mortgage, on the other hand, comes with an interest rate that can fluctuate. The interest rate may go up or down. Many borrowers who choose an adjustable-rate loan do so because the rate is typically lower compared to a fixed-rate loan.

Long before the new mortgage disclosure statements came out, many borrowers were unaware that they actually took out adjustable-rate home loans when they were under the impression that they were signing up for fixed-rate loans. When their mortgage payments started to increase, they were unpleasantly surprised. Many times the mortgage amounts were more than they could afford, placing them at an increased risk of default.

The Loan Estimate will stipulate whether or not the loan amount will increase after closing. If you’ve taken out a fixed-rate loan, your Loan Estimate form should clearly state that the loan amount will not change. Otherwise, you may have unknowingly signed up for an adjustable-rate mortgage and should speak with your lender about making the necessary adjustments.

Monthly payment amount.

You’re obviously going to want to know how much you will have to pay each and every month in order to budget accordingly, and this number will be spelled out on your Loan Estimate. The Projected Payments tab will break your loan payment down into three components – principal and interest, mortgage insurance, and estimated escrow – and how each component may change in the future.

Appraisal fee.

Before you are approved for a mortgage, your lender will want to know exactly how much the home you agreed to buy is worth. Ideally, it should be appraised at or near the price that you agreed to pay. Your lender will appoint a professional appraiser to have the appraisal done. If it comes in low, you may be denied a mortgage as the lender will not want to assume the risk of extending a mortgage for more than what the home is presently worth based on current market conditions.

The appraisal will come at a cost to you, and this fee will be stated in the Loan Estimate. Generally speaking, this expense will have to be paid to the lender before the appraisal is even conducted, and therefore before you’re approved for a mortgage.

Charges for discount points.

If you “buy down” the interest rate, this amount will be payable at closing and will be outlined in the disclosure statement. Buying down points essentially means paying an upfront fee in exchange for a lower rate. Each discount point bought down generally equates to a decrease of as much as 0.25 of a percentage point on an interest rate.

Total amount owed at closing.

You will need to show up to the closing table with the total amount owed, which will be indicated on your Loan Estimate. You’ll likely be asked to bring this payment in the form of a certified check or money order, which your lender will verify for you. Be prepared to pay an administrative fee to your bank for generating the check.

The Bottom Line

The Loan Estimate is definitely not a document that you want to gloss over quickly without going over it in detail. After all, it lists all the expenses you’ll be responsible for paying, so knowing what all these fees are before the deal is sealed will help you avoid any unpleasant and unexpected surprises. Go through this document with your lender and make sure to ask any questions if anything is unclear or seems to be inaccurate. To make sure you’re fully in-the-know about what you owe, study the figures on your Loan Estimate and compare them to what’s been outlined on your Closing Disclosure.