Archive for the ‘Mortgage’ Category

Mortgage Closing Costs: Avoid Overpaying at Closing

Tuesday, December 25th, 2007

Many homeowners overlook closing costs when shopping for a mortgage or home equity loans. If you do this there is a good chance you will overpay this expense. Here is what you need to know to avoid overpaying at closing.

Closing costs can quickly add up to large sum. Once the lender and the title company add in points, title insurance, and administrative fees you will be required to pay thousands of dollars to close. Your total closing costs depend on a number of factors; some of these are subject to negotiation.

Overall your closing costs should not be greater than five percent of the loan amount, not counting your down payment. Application fees and loan origination fees are paid to the mortgage lender and are a negotiating point when shopping for a loan. You may also be required to pay the interest due from your closing date until your first monthly payment; closing on the last day of the month will save you this expense.

When you shop for a mortgage loan make sure you compare the closing costs using the Good Faith Estimate provided by lenders. Many homeowners make the mistake of comparing mortgage offers based on the Annual Percentage Rate (APR). The APR is a good starting point when comparison shopping but it does not factor in these closing costs.

Your goal for closing cost on your new loan should be around two to three percent if possible. Negotiating with lenders will help you reach this amount. You can learn more about saving money on your mortgage or home equity loan by registering for a free mortgage guidebook.

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Can I Minimize Or Avoid Closing Costs

Tuesday, December 25th, 2007

Basics

The usual way people avoid or minimize their closing costs is to have the costs included in their loan.

Rather than paying these costs up front the borrower pays the costs through the loan over time.

This allows a buyer to save their cash up front. For a buyer getting 100% financing this helps them have very little in the way of cash costs when getting a property.

How To Do This

The closing costs are usually added into a loan.

For example, a $300,000 sale may involve $5,000 in closing costs. If a borrower is getting a 100% loan of $300,000 they will still need to pay the $5,000 in closing costs out of pocket.

To avoid this a seller may change the price to $305,000 and credit the buyer back $5,000 towards closing costs.

In this way the seller still nets their $300,000 price and the buyer doesn’t have to pay the $5,000 in closing costs out of pocket.

Closing Cost Limits

Lenders that allow closing costs to be part of the loan usually have limits on the amount of closing costs they will allow to be covered.

For example, many lenders will allow up to 6% closing costs. This is a proportion of the transaction amount. For example, on a $300,000 transaction this is $18,000 in closing costs that can be covered as part of the loan ($300,000 x 0.06).

In this way the sale of a property is facilitated. The buyer and seller both get what they want, and the lender is able to do the loan.

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No Closing Cost Mortgage

Tuesday, December 25th, 2007

There are a number of mortgage lenders advertising loans with “no closing costs.” These lenders brag that the mortgage comes with no closing costs, up-front points, appraisal fees, title insurance, or origination fees. If you sign up for this mortgage you pay nothing out of pocket at closing; sounds like a great deal, right?

On the surface, this does sound like a great mortgage deal. It’s what the lender isn’t telling you that make these loans and the mortgage lenders that tout them sleazy.

If you were to go out and finance your home with a traditional 30 year, fixed interest rate mortgage the average closing costs would run you between $2,000 and $3,000. This doesn’t include any points you may be required to pay at closing.

No closing costs mortgages are simply a way for the mortgage lender to disguise the fees they are charging you. Lenders do this by marking up the interest rate they are charging you by as much as 1 or 2 percent.

This markup on the interest rate is going to cost you significantly more than the $2,000-$3000 you would pay at closing on a traditional mortgage. If you stay with the mortgage for more than six years, this loan will cost you more than paying the closing costs up front.

In almost every situation it will save you money to pay the closing costs and shop for the most competitive interest rate. To learn more about common mistakes homeowners make when shopping for a mortgage sign up for a free mortgage guidebook

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