If you’ve ever purchased your own home you know that the paperwork you have to fill out is nothing short of amazing. But one thing that’s often asked by first time home buyers is what exactly closing costs are.

When you finally go in to sign all the paperwork to transfer ownership of your home from the previous owner, be it a person, bank, or builder, to you, you’ve entered “closing”. With closing comes certain costs, such as lawyers fees, the costs of warranties, and pro-rata homeowners association fees. These are what are known as closing costs.

While some mortgage companies will offer you zero closing cost mortgages as incentive to get your business, it’s not the norm and is something that you should be on the lookout for as it can save you several thousand dollars in costs at the very end of what is already a lengthy and expensive process.

Many people are asking about private mortgage insurance due to concerns about the current market value of their homes.  Here are some important facts for you to know:

• If you put less than 20% down on a home loan, your lender will require Private Mortgage Insurance (PMI).  PMI protects the lender if you default on the loan.
• The Homeowners Protection Act of 1998 establishes rules for automatic termination and borrower-requested cancellation of PMI.
  • PMI must be terminated automatically when you reach 22% equity in your home based on the original property value IF your mortgage payments are current.
  • You may request the cancellation of PMI when you reach 20% equity in your home if your payments are current.
  • Borrowers must be told at closing and reminded once a year about PMI termination and cancellation.
• For many borrowers, PMI is tax deductible through 2011.  Here’s how it works:
  • Borrowers with adjusted gross incomes up to $100,000 may be able to deduct 100% of their 2011 premiums.
  • Deductions are phased out in 10% increments for borr0wers with adjusted gross incomes between $100,001 and $109,000.*

With rates STILL at (almost) historic lows, it might make sense to refinance even if PMI is required on your new loan.  Remember - it doesn’t stay on the loan for the entire loan term, but a lower interest rate will benefit you over the life of the entire loan.  Check with a CapCenter Loan Consultant to learn more.

* Borrowers should consult their tax advisers for applicability of this deduction to their specific circumstances.

People are constantly making mistakes when it comes to home financing.  Whether it’s a refinance or a home purchase, there are certain precautions to take to make sure you end up with the best loan product for your situation.  It is similar to the instinctive process of finding a mate. 

It’s far too common for people to look at one rate, one term, and pull the trigger.  Shop around!  You don’t talk about kids and a white picket fence on a first date.  Why?  Because you do your research, and make sure she (or he) is the right one.  Sure, she might seem perfect.  But when you meet all eleven of her cats, you will most likely begin searching elsewhere.  Mortgages vary just as much as people, so be sure to look as many places as possible for the best rate/term package for you.

Be sure to check your credit score BEFORE you apply for a loan.  Have you ever walked into a first date without rehearsing at least a few of the inevitable questions? Of course not – because you want to seem eloquent.  You want to know yourself.  Before applying for a mortgage, you need to know where you stand and the products that will be made available to you.   Check out AnnualCreditReport.com for a free lesson in your credit history (and E-harmony.com for an expensive lesson in who you’re compatible with).

Another common error is falling in “love” with a house and signing up for payments you can’t afford.  Your monetary position dictates where you live, not vice versa.  We all want to date that tall blonde, but her infatuation with Italian leather and German sports cars limit those who actually can.  Having easily affordable house payments will keep you from worrying down the road (and, God forbid, foreclosing).  Getting a pre-approval letter from a lender like CapCenter will help you avoid this dating (and lending) pitfall.

Finally, be sure to get a written offer from your lender.  While you can be sure an offer from CapCenter is accurate and above board, you never want to be assaulted by a pack of nasty surprises at the closing table.  Like an air-tight prenuptial agreement, you want to know what‘s being promised is what you’re getting.    You should never be caught off guard by your mortgage lender, either.  

In sum, you know you won’t get seriously involved with someone without doing your due diligence.  Getting to know their personality.  Learning about their passions.  Analyzing their facebook account.  Whether it’s for a refinance or a home purchase, the same amount of care and precaution needs to go in to finding a mortgage.