The Home Buyer's Korner

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September 11th, 2015

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Tips to Reduce Your Out of Pocket Closing Costs

Stephen Border

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Hawaii’s average mortgage closing costs of $2,163 are the highest in the nation, according to a new comparison, but those costs are based on a $200,00 mortgage in a recent survey. Since most of our homes here on Oahu vary from $400,000 to $2,000,000, I recommend you use an incremental amount when thinking about closing cost and a home in your market price range.

If you’re looking for a home in West Oahu you might be in the market for a home around $500,000, and if you’re using an FHA mortgage with just 3.5 percent for the down payment your mortgage amount would be $482.500. Your closing costs would be more in the neighborhood of $4300.00 on average mortgage, in addition to the down payment of $17,500, but I have several solutions for you to consider before buying a home.

Behind Hawaii in the national ranking, are New Jersey, with average closing costs of $2,094; Connecticut at $2,033; West Virginia at $1,971, and Arizona at $1,969.

The cheapest mortgage closing costs, are in Ohio at $1,613; Idaho at $1,682; Wyoming at $1,689; Utah at $1,697, and Maine at $1,727.

In a recent surveyed as many as 10 lenders in each of 50 states and the District of Columbia in June and found that nationally, mortgage closing costs declined seven percent during the past year averaging $1,847 on a $200,000 loan.

On a national level, the average origination fee dropped 22 percent to $1,041, but the average third-party fee rose by the same percentage, to $807.

Home buying has costs associated with it. Not only is there often a mortgage, but you’ll also have something known as closing costs. These fees are a part of the home buying process and they are due at the time the mortgage is finalized with a small amount often required upfront, such as securing an appraisal. It’s difficult if not impossible to negotiate any upfront costs and reduce the expense as they are fees charged by third party vendors, but there are a couple options available to home buyers who might have limited funds.

If you are thinking of buying a home here are a few helpful tips for minimizing our out of pocket expenses.

If you’re using mortgage financing to purchase a home, ask for a couple good faith estimates on any loan programs you’re interested in that discloses the closing costs you’ll be required to pay; one that covers closing costs and one where closing costs are paid by the lender. When a lender pays the closing costs they’ll charge you a small increase in interest rate, and it can offset some or all of your closing costs including prepaid fees like property taxes and insurance you’d normally have to come up with at closing. By having two good faith estimates and an amortization schedule you can get busy comparing and seeing which option is right for you.

Personally, I’m a big fan of lender paid closing costs, because it allows you to keep your cash in a rainy day fund, and with interest rates still low every $1000 the lender offers as a lender credit can often be paid back at under $5.00 a month with an increased house payment. Be sure to compare all of your options to ensure that you’re getting the best possible deal and paying the least amount in fees and interest.

Regardless of what lender you use, don’t be lured in by low discount points, but high fees. Remember a cost is a cost and what it’s called really doesn’t matter, because all money is green. If you’re comparing lender rates and fees, you’ll need to compare the rate offered; lender fees and don’t concern yourself with third party fees like title insurance, appraisal fees or survey cost. What you’re looking for is the interest rate, discount & origination fees and any lender fees charged like an underwriting fees, processing fees and lender doc prep fees.

If all this still sounds a little confusing, don’t be afraid to ask questions, and if you’re still confused, ask your real estate agent to help you review your good faith estimates. Real estate agents have a lot of experience with good faith estimates, and if you explain to them what you’re looking for and your financial situation a real estate agent can give you an honest independent opinion of what appears best for you.

Another option is a term call seller concessions and something your real estate agent can help you with.

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Closing costs

State Average origination fees Average third-party fees Average origination plus third-party fees
Alabama $1,066 $776 $1,842
Alaska $935 $922 $1,857
Arizona $1,208 $761 $1,969
Arkansas $1,057 $760 $1,817
California $937 $896 $1,834
Colorado $1,192 $719 $1,910
Connecticut $1,074 $960 $2,033
Delaware $904 $924 $1,828
District of Columbia $1,077 $718 $1,794
Florida $1,028 $778 $1,806
Georgia $1,058 $821 $1,879
Hawaii $1,033 $1,130 $2,163
Idaho $894 $788 $1,682
Illinois $1,080 $767 $1,847
Indiana $1,067 $770 $1,837
Iowa $1,161 $762 $1,923
Kansas $1,047 $753 $1,800
Kentucky $1,060 $737 $1,797
Louisiana $1,060 $817 $1,877
Maine $897 $830 $1,727
Maryland $1,093 $742 $1,835
Massachusetts $905 $851 $1,756
Michigan $1,072 $746 $1,818
Minnesota $1,067 $689 $1,757
Mississippi $1,046 $837 $1,884
Missouri $1,040 $792 $1,833
Montana $1,062 $855 $1,917
Nebraska $1,047 $770 $1,817
Nevada $1,002 $848 $1,850
New Hampshire $1,084 $750 $1,835
New Jersey $1,181 $913 $2,094
New Mexico $1,076 $876 $1,952
New York $1,032 $879 $1,911
North Carolina $1,036 $875 $1,911
North Dakota $1,045 $791 $1,836
Ohio $933 $681 $1,613
Oklahoma $1,027 $734 $1,761
Oregon $1,080 $785 $1,864
Pennsylvania $1,055 $678 $1,733
Rhode Island $1,093 $802 $1,896
South Carolina $1,058 $837 $1,895
South Dakota $1,055 $704 $1,759
Tennessee $1,033 $773 $1,806
Texas $1,031 $833 $1,864
Utah $909 $788 $1,697
Vermont $1,074 $862 $1,936
Virginia $1,050 $787 $1,837
Washington $1,077 $824 $1,901
West Virginia $1,067 $904 $1,971
Wisconsin $1,047 $723 $1,770
Wyoming $874 $814 $1,689
Average $1,041 $807 $1,847

The survey used up to 10 lenders in each state in June 2015 and obtained online Good Faith Estimates for a $200,000 mortgage to buy a single-family home with a 20 percent down payment in a prominent city. Costs include fees charged by lenders, as well as third-party fees for services such as appraisals and credit reports. The survey excludes title insurance, title search, taxes, property insurance, association fees, interest and other prepaid items.

HOMES FOR SALE LISTINGS

Livingston Homes for Sale

HAWAII HOME OWNERSHIP TOOLS

Your Home Purchasing & Renovation Tools,

Home Improvements, Home Renovations,

Mortgage Loan Officers & General Contractors

are ready to assist you with your home purchase.

Here are just a few of the home improvements

you might consider with any Home Renovation loan

Repair or replace a roof

Install, replace or repair gutters and downspouts

Replace, repair or upgrade your HVAC system

Repair or replace plumbing

Install, repair or replace electrical systems

Kitchen remodeling (including the purchase and installation of appliances)

Bathroom remodeling, Full interior painting, Total exterior painting

Repair or replace a septic system and/or well

Disability access (wheelchair ramp, elevator, widen doorways)

Build, repair or replace deck, patio or porch

Basement waterproofing and finishing

Abatement/Stabilization of lead-based paint hazards

Replace old windows, Room additions, Finish an attic

Add a second story to your home

Replace a termite damaged sill plate (a water-damaged sill plate also)

Possible landscaping items such as correction of grading & drainage problems,

tree removal, repair a driveway and sidewalks

FHA 203K

Your Home Purchasing & Renovation Tool

Mortgage Loan Officers & General Contractors

are ready to assist you with your home purchase

FANNIE MAE HOMESTYLE

The Conventional Alternative to FHA 203K

Great for Real Estate Investors and Second Home Renovations

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase

USDA RURAL DEVELOPMENT

Up to $10K for Home Improvements, Renovations or a Simple Remodel

Mortgage Loan Officers, Real Estate Agents & General Contractors are ready to assist you

A SIMPLE HOME SHOPPING INSPECTION TOOL

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Organizing your home shopping experience affords a wise decision-making process.

This simple home inspection tool makes your ultimate buying decision a smart one.

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