Closing Costs Explained
February 13, 2010 by · Leave a Comment
Certain areas of the country may have added closing costs, but these are the general types of closing costs you might see at closing:
Attorneys or escrow fees
Property taxes
Pre-Paid Interest
Loan Origination fee
Recording fees
First premium of mortgage Insurance
Title Insurance
Loan discount points
First payment to escrow account for future real estate taxes and insurance
Paid receipt for homeowners insurance policy Underwriting fee
Tax service fee
Broker fee
Appraisal Fee
Always take your Good Faith Estimate with you to compare to the fee’s on the final HUD statement. You want to make sure that there were no extra added fee’s.
Recording Fees are the costs to record any documents that needed to be recorded at the county clerk’s office. The most likely documents that are recorded are the mortgage agreement, the note, and the deed. Recording is often done by the title company.
The Settlement document containing the final closing costs or HUD may also be referred to as the HUD-1 or HUD-1A
It is a good idea to look at both the good faith estimate (GFE) and the truth in lending (TIL) when shopping for a mortgage.
The closing costs usually can be broken down into three basic areas. 1) Costs from the lender 2) Costs from the broker (if any) and 3) Costs from third party service providers and government agencies.
In states such as New York, one of the largest closing costs to be aware of is mortgage recording tax, a fee charged by your county. To determine how much mortgage tax will be payable at the closing of your mortgage refinance, contact us at .
Always ask questions about any fees that you do not know what they are for, especially if you notice a big difference between the fees listed on your Good Faith Estimate and your final settlement (HUD-1) paper. Closing costs are generally broken down into a few categories: lender fees, mortgage professional fees, title fees, and state/county/city fees and pre-paid items (such as escrowing for taxes and insurance and prepaid interest). Understanding where the fees and costs are going will sometimes help to understand the necessity and reasons for some of the costs.
Closing costs are fees associated with any real estate loan transaction.
Federal law requires the lender to disclose all reasonable fees at the origination of the loan on a ‘good faith estimate’ within 3 days of application.
All actual closing costs are then again disclosed on the closing documents , commonly called the HUD .
On a purchase loan, the buyer can negotiate vender invoices to be included as seller closing costs to be paid out of escrow.
Whether or not you chose to escrow taxes and insurance is your option, and it often has an effect on the rate of the loan, so make sure to be clear to your broker on what your intentions are for payments of taxes and insurance.
What comparing closing cost between mortgage brokers and lenders it is also good to have the Truth N’ Lending (TIL). Some lenders will have higher closing costs with a lower rate, and vice versa. The TIL will help you compare the cost the entire loan package between lenders.
Property taxes may be credited to you if they are paid in the back or you may have to pay the property taxes if they are prepaid in that particular state.
Always ask for a copy of the final Hud-1 24 hours from closing to give you a chance to look through the fees and compare.
Most closing costs are not set in stone, and are negotiable. Some closing costs may depend on which loan program you decide to go with, and or what interest rate you qualify for.
In most states, there are transfer taxes that must be paid at the time of a home purchase. These taxes are usually split between the seller and the buyer.
Prepaid interest is the interest per day that the lender charges for using the money. For example if you close on the 10th of the month you will pay interest for aproximately 20 days (in a 30 day month) for using their money for 20 days then on the first of the following month your interest will start to accrue daily for the full month. The purpose is so that when you make your first mortgage payment you are only paying the 30 days worth of interest and some to the principal compared to paying for 50 days worth of interest if you were not to pay the prepaid interest.
Mortgage Loan Origination Fees And Charges
February 12, 2010 by · Leave a Comment
You may wonder how many origination points you can legally be charged by your mortgage broker. The maximum fee cap varies from state to state. Wisconsin for example the broker is capped at 6% total commission. This means that you could be charged up to 6 points origination fee by your broker. This can also be split up between lender paid Yield spread rebates to the broker and origination fees.
Depending on your situation you may want to re-think the question. It isn’t how many points can I be charged but instead should be “how many points will I allow myself to be charged”? Many direct lenders charge a lot of points. One way to avoid being overcharged is to work with a broker or mortgage professional that is not a direct lender. Look over your good faith estimate and make sure your comfortable with the charges.
As a rule of thumb, 1% percent is what most reputable brokers will charge for an origination fees, if the loan falls within normal loan amounts.
Your loan officer is probably willing to work with you on how they make their money. For example, if you want lower closing costs, they may increase your interest rate to be paid yield spread from the lender that completely covers their fees. On the other hand, if you want the lowest interest rate, they may put all of their fees in ‘origination fee’, and you will pay for it out of your closing costs. Tell your loan officer what is important to you, and they should be willing to work with you on it. If not, you might consider finding a new one.
Not only does the maximum fee or number of points that a mortgage broker can charge vary by state, but it also varies by each lender. Each lender has their own policy in force that determines how much they will let a loan officer charge a customer. Many lenders are starting to cap the maximum points that can be charged to a borrower to 5%.
Usually, depending on the loan program, things such as points are negotiable. Very rarely will the number of points charged be at the maximum amount possible.
If you are wondering whether the mortgage broker you are working with is charging the maximum number of points allowed, you may consider working with another broker. However, there are situations that can exist, that would merit an unusually high fee (points) be charged for a loan. If you are wondering, call two or three other mortgage brokers and explain your scenario with great detail to see where your deal ranks with what they may be able to do for you.
Key Factors in Qualifying for a Home Mortgage Loan
January 27, 2009 by · Leave a Comment
When a lender makes a decision about a mortgage application, they consider two basic factors: 1) your ability and 2) your willingness to repay the loan. No matter how you compare mortgage rates, these two factors are important
Ability to repay the mortgage is determined by verifying your current employment and analyzing your total income. Lenders prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few years. Your proposed monthly payment will be compared to your monthly income and debt.
Willingness to repay is influenced by how you have paid previous loans and by examining how the property will be used. Willingness can be gauged by your credit report and previous commitments to pay rent and/or utility bills. There is also a greater tendency to stick with your payments if you live in a house as opposed to a rental property or vacation home.
It is important to remember that there are no set rules and each applicant is handled on a case-by-case basis. Many applicants come up a little short in one area, but make up for it with other strong points. These compensating factors may include a large down payment, solid employment, extensive educational background or overall financial health.
For applicants who need to make a lower down payment, mortgage insurance is protection for the lender in case you stop making payments. This allows low and moderate income families to become homeowners with low down payment programs
When trying to qualify for a home purchase, make sure that you get pre-approved before you begin house hunting. This will let you know how much of a mortgage you can be qualified for and if there are any problems with credit or anything, should provide you some time to take care of the issues upfront (not after you have already signed a purchase agreement and have a time deadline). Qualifying for a home loan is a fairly simple process with a knowledgeable and experienced mortgage broker.
Most lenders will allow for a debt to income ratio of between 40% to 55%.
When getting qualified for a home mortgage loan the property (collateral) will also need to be deemed acceptable to the lender. This is usually done by means of having your home appraised by a licensed appraiser and the underwriter reviewing the appraisal.
Automated underwriting is used on most conforming loans and this may allow for a certain amount of lates on your credit, a higher debt ratio or a lower credit score, so there may not be any set guidelines for your credit or debt ratio.
There are several ratios that get used to see if you qualify for a home loan. Your credit is examined, your income and your job history are all important factors when looking to qualify. The help of an honest and experienced mortgage professional is vital to getting approved.
Your gross monthly income is used to qualify you for a mortgage loan. Your gross income is how much you make before taxes.
Good Faith Estimate Explained
January 21, 2009 by · Leave a Comment
Loan Officers are requried to send a Good Faith Estimate to their clients as part of their pre disclosures. The Good Faith Estimate will have a line by line description of all finance charges associated with the loan. The Origination Fee is the fee your Loan Officer is charging to originate your loan.
When looking at your GFE look to see that the lender/broker has included what the title company will be charging. Though your lender/broker is not able to waive these charges they may be able to marginally influence the charges. One item that is not negotiable is the title insurance. This is usually divided into two parts, lender’s insurance & owner’s insurance.
Other charges can be Loan Discount or Loan Discount Point. This is most commonly referred to as “Points”. It is the cost of buying down the rate to reduce your overall monthly payment. The more you pay to buy down the interest rate, the less you will have to pay on the overall interest on the life of the loan. Some loans will have no points and some may have a required cost due to the particulars of the loan.
If an escrow account is going to be setup for you (this is usually a good idea for new homebuyers and those who have a harder time setting money aside for later) then look in the section for Reserves Deposited with the Lender. Depending upon your state you will have anywhere from 2-8 months of reserves that are included that will be held by the lender for your escrow account. The two items held in reserves are your home owner’s insurance and your property taxes.
Another item located on the Good Faith Estimate is Government Recording and Transfer Charges. These are the taxes that most jurisdictions include to get their fair share. On a purchase the taxes, stamps and recording fees are usually split between the seller and buyer. On a refinance, the taxes fall solely on the homeowner. Make sure this area is completed so it does not come as a surprise down the road.
Another form that is often used in replacement of the Good Faith Estimate is the MLDS. Mortgage Loan Disclosure Statement.
Just remember when looking at the Good Faith Estimate there will be Estimated Closing Costs and Estimated Prepaid Items. The prepaid items (escrow monies, taxes, etc.) are mandatory collections. The Closing Costs are what should be looked at attempt a true apples to apples comparison.
The Good Faith Estimate is often the first from that will disclose many of the most important aspects of your loan. The law requires your good faith estimate be provided by your lender or broker no later than 3 days from the receipt of your complete application. Be sure to carefully examine the interest rate, term, monthly payment, and amount due at closing to ensure the loan you are applying for is what you think it is.
Tips To Save On Mortgage Loan Fees
January 19, 2009 by · Leave a Comment
The first tip is to understand which fees are negotiable and which fees can be deleted. There will be lender related fees which may be negotiable and government related fees which are usually not negotiable.
Ask the broker to send you a copy of the good faith estimate and don’t be afraid to ask questions and demand answers for every penny listed on the estimate. ALSO, keep in mind that it is an estimate, and some of the figures can legally change before closing, so be sure to ask the broker which of those fees are constants, and which of the fees are variables.
Fees are generally broken into three categories: Fees associated with the Loan, Title/Government fees, and Pre-paids/Reserves. The title/government fees are standardized and will be the same regardless of who you do a loan with, so will the pre-paid/reserves. Only some of the fees associated with the loan can be negotiated.
In a purchase transaction the seller generally gets to choose the settlement agency and title attorney. Be sure to ask your mortgage broker to double check the fees being charged by the sellers chosen closing agents as this is often a source of dispute at settlement. If you think the fees are unreasonable you may be able to demand a neutral settlement agent be used.
Keep in mind that if you are able to negotiate a lower fee, you should keep an eye on the interest rate to make sure it does not increase. Some lenders will offset your savings on the closing costs by inflating your interest rate.
Using the same mortgage company (mortgage broker), the same title company and/or the same appraisal company to handle all of your mortgage financing can usually save you a considerable amount of money from fees being charged to you. Many mortgage brokers will provide discounts for you if you continue to use their services for all of your home financing needs along with possibly being able to negotiate lower fees from the other service providers involved.
A fee that is frequently overlooked is the notary fee. Many companies are now charging to have a notary signing agent come to your home to complete your loan documents. Typically the fee is around $350 to $450 for the service. The notary usually only gets about $75 to $125 of that fee and the rest is eaten up by the intermediate services. Ask to close your loan at the escrow company or contract your own notary by going to one of the notary signing agent bulletin boards like notaryrotary.com
The notaries are listed by zip code and their fees are usually posted on their profiles. Find an experienced notary near you and you may be able to save even more.
If you have questions regarding any of the fees you are being charged, do not hesitate to ask your mortgage professional what the fee is for. The only way you will know is if you ask. If you are being charged an application fee, ask if it is possible to get the loan without the application fee. Also, if you are being quoted X amount at one mortgage company, but you prefer another company, ask the other company if they are willing to match the closing costs if you were to bring in a good faith estimate. Often times they will, because they would like to have your business.
