The Home Buyer's Korner

Information presented should be used for educational purposes only.

March 6th, 2015

Guy looking up in color

GREATER LAFAYETTE; NEARBY CITIES & PARISHES

The Home Buyer’s Korner

Google+ RE Community

Google+ Mortgage Lender Community

Google+ General Contractor Communities

Understanding Closing Costs

Closing Cost

With mortgage interest rates at near or record lows many lenders are advertising their Annual Percentage Rates or APR under 4%, but what many home buyers aren’t familiar with is, with these low APR’s closing cost has often increased. Recently analysts have shown that currently closing cost have increased about six percent in the past year.  Much of this has come from additional cost lenders have incurred due to regulatory changes and passing the cost to home buyers. 

In this post we’ll discuss ways to ensure you not only get a good rate, but also how to compare closing cost to determine which lender is giving you the best deal. 

All mortgage loans require closing costs.  You’ll either pay for them in cash, finance or have a third party cover them. Third parties normally include either the seller or the lender. If the seller pays them, it pretty straight forward.  At closing your title agent will collect the appropriate fees from the seller and disburse them accordingly. If you lender pays the closing cost it’s done by charging you a higher than normal interest rate, consequently the lender will get what’s called premium pricing for the higher rate from the loan servicing mortgage lender and use some or all of these fees to cover your closing cost. Mortgages, where the costs are paid by the lender in full are known as “zero closing cost mortgage loans” and they can be to your advantage, depending on how long to plan to own your home.

Mortgage rates for a zero closing cost mortgage loan typically are priced at about one-eighth to one-quarter percentage higher than a mortgage for which the home buyer would pay their own closing cost by the seller.  If you have sufficient fund to pay your closing cost in cash and want to see which option best fits your needs, ask for a good faith estimate for a borrower paid and a zero closing cost mortgage loan.

Next have your lender provide you with an amortization schedule for both. Within your amortization schedules you’ll see the payment differential and you’ll be able to see if it’s to your advantage to pay the closing cost upfront or pay a little more each month and keep your money in reserve for as a rainy day fund.

With rates this low you probably won’t be refinancing anytime soon and if you intend to live in the home for years to come, paying the fees upfront probably is a good idea. However, if this is a starter home and you might sale in the not too distant future, you may want to pay a little higher monthly payment and keep your cash in reserves.

Only you know your short term and long term intentions. Knowing this, you’ll want to take your amortization schedule and locate both payments and deduct the lower from the higher payment. This is the difference you pay between the two.  Then multiply that figure to get it as close to the upfront closing cost your lender provided you.  From here you’ll know how long it would take to break even and helpfully you’ll have a good idea how long or short a timeframe you plan to live in the home to determine which option might be best for you.  

Closing costs are broken down into two categories – mortgage lender closing costs, which are fees the lender charges to offer you a loan like; discount points, origination fees, underwriting fees, processing fees, lender doc prep fees or broker fees. Title insurance, appraisal fees, credit report fees, tax service fees, escrow fees and any fees not directly paid to the lender for your loan are third party fees and shouldn’t be included in your analysis, as they aren’t part of the APR.

Lenders often give their fees unique names, which can make it difficult to compare specific loan costs between banks. This is why it’s better to compare TOTAL lender costs rather than any one specific line-item. Lender fees are summarized in Section 800 of the Good Faith Estimate your lender will provide.

Now that we’ve explained closing costs, let’s take steps to make sure you don’t pay more closing costs than you need.

The first rule is not to pay more discount point than you should. Discount points are one-time; upfront fee paid at closing, which lowers the mortgage rates. They’re paid as a percentage of your loan size and one discount point carries a cost equal to one percent of your loan size. A $300,000 loan with one discount point would require $3,000 in cost.

I recommend you begin your mortgage rate comparison by visiting Freddie Mac’s Mortgage Interest Rate Comparison website to see what the average rate home buyers pay weekly. Rates here aren’t to be construed as an absolute, as each home buyer has a different variable. For example, a home buyer with a 740 FICO and 20 percent down payment will pay a lower rate than a home buyer with a 620 FICO score and paying only 3.5 percent as a down payment. It’s all about risk, but you’ll see what the average interest rate is and it’s updated each week on Thursday at 10 a.m. The only best way to see what rate you’ll be offer is to shop around and compare.  Based on your unique circumstance and a little rate shopping, you’ll get a good idea of what rate you can expect.   

For home buyers who plan to keep their mortgage at least seven years or more would probably benefit paying discount points, but the best way to know this yet again, another amortization schedule.  This time you want one that provides you with a zero discount point rate and one or more with discounts point charged. What you will be looking for here is again the monthly payment for each rate and discount points, then depending on how long you plan on keeping your mortgage is the variable to determine and if paying point or not is best for you.

It’s also with noting that discount points have the secondary effect of lowering a mortgage loan’s APR. Because of this, lenders will often use discount points, as a way to make their rate look more attractive in the marketplace.  Never just look at APR, as closing cost vary and it’s really just a marketing tool lenders use to advertize.

One last topic to cover about discount points is they are tax deductible.  If you choose to pay discount points make sure you include them as a deduction along with any interest you pay for the year you close on your new home. 

Another way to reduce your closing costs is to lock your mortgage rate for the appropriate time frame. Rate locks are typically available in 15, 30, 45 and 60-day increments, with the shortest lock period normally having the best rate and/or discount points.  Be careful to choose a rate lock that’s at least as long as your estimated closing date, if not just a little longer.  It makes no since to get a 15 day lock if you don’t plan to close for 35 days. Conversely don’t let you lock expire. You can do this by making sure you get your loan conditions to your lender immediately, so they can get your mortgage application to underwriting as soon as possible.

If you put things off. You could go past your lock date and might have to pay an extension fee or be force to get a new lock at that days pricing, which could be higher than when you made application. Keep your closing costs low by selecting a realistic and appropriate rate lock for your loan.

ting that discount points have the secondary effect of lowering a mortgage loan’s APR. Because of this, lenders will often use discount points, as a way to make their rate look more attractive in the marketplace.  Never just look at APR, as closing cost vary and it’s really just a marketing tool lenders use to advertise.

One last topic to cover about discount points is they are tax deductible.  If you choose to pay discount points make sure you include them as a deduction along with any interest you pay for the year you close on your new home. 

Another way to reduce your closing costs is to lock your mortgage rate for the appropriate time frame. Rate locks are typically available in 15, 30, 45 and 60-day increments, with the shortest lock period normally having the best rate and/or discount points.  Be careful to choose a rate lock that’s at least as long as your estimated closing date, if not just a little longer.  It makes no since to get a 15 day lock if you don’t plan to close for 35 days. Conversely don’t let you lock expire. You can do this by making sure you get your loan conditions to your lender immediately, so they can get your mortgage application to underwriting as soon as possible.

If you put things off. You could go past your lock date and might have to pay an extension fee or be force to get a new lock at that days pricing, which could be higher than when you made application. Keep your closing costs low by selecting a realistic and appropriate rate lock for your loan.

VISIT OUR SOUTH LOUISIANA “HOMES FOR SALE” BOARDS

Livingston Homes for Sale

FIND HOMES THROUGHOUT SOUTH LOUISIANA

HUD $100 DOWN PAYMENT HOMES IN SOUTH LOUISIANA

USDA RURAL DEVELOPMENT HOMES IN SOUTH LOUISIANA

FIND FORECLOSURES IN LAFAYETTE; NEARBY CITIES & PARISHES

FIND MORE FORECLOSURES IN LAFAYETTE; NEARBY CITIES & PARISHES

LOUISIANA HOME OWNERSHIP TOOLS

FHA 203K

Your Home Purchasing or Refinancing & Renovation Tool

Mortgage Loan Officers, Real Estate Agents & 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

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

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

To print this document click on “Open in New Window” located at the lower right corner;

click on “File”; then click on “Print”. In the center of the screen you will

have the option to “Create A Printable PDF of the Presentation”.

START YOUR PATH TO HOME OWNERSHIP TODAY

FNMA HomeStyle FNMA My Community Mortgage FHA One-Time Close Construction Portfolio or VA home loan Homes for Sale REO Short Sales FNMA HomePath Properties HUD Homes USDA Homes Condominiums Co-Ops Townhomes Manufactured Homes Modular Homes Mobile Homes Log Homes Second Homes Investment Property 2-4 Family Custom Home Builders Custom Built Homes General Contractors Home Improvement Experts Kitchen & Bathroom Renovations Real Estate Brokers & Agents Mortgage Lenders Federal Credit Unions Community Bankers Acadia Parish Branch Church Point Crowley Egan Estherwood Mermentau Morse Rayne East Feliciana Parish Clinton Hillcrest Estates Lake Evans Estates Winchester Estates Jackson Feliciana Crossing Estates Highland Meadows Estates Oakwood Estates Salledale Estates Schwing Estates Norwood Slaughter Wicker Ridge Estates Wilson Iberia Parish Delcambre Hubertville Jeanerette Loreauville Lydia New Iberia Oubre Sumerall Iberville Parish Bayou Goula Crescent Grosse Tete Maringouin Barrows Subdivision H M Kimball Estates Ridgewood Estates Suns Island Acres Estates Myrtle Grove Plaquemine Bayou Estates Desobry Estates Duponts Annex Gauthier Street Estates Green Acres Estates Historic District Estates Iberville Trace Estates The Island Estates Labauve Annex Osage Annex Pecan Pointe Estates Plantation Place Estates The Point at The Island Estates Random Oaks Estates Stones Throw Estates True Hope Subdivision West Terrace Estates Rosedale Griffin Place Estates Saint Gabriel Turnerville White Castle Adams Estates Lafayette Parish  Broadmoor Broussard Carencro Duson Lafayette Acadian Acres Estates Acadian Heights Estates Acadian Oaks Estates Acadiana Place Estates Acadiana Woods Estates Acadiana Woods Estates Phase I Alcide Dominique Estates Ambassador Gardens Estates Ambassador Square Estates Anastasia Acres Estates Arbolada Estates Arnould Addition Estates Arnould Heights Estates Arnould Heights Estates Extension 2 Arrowhead Estates Ashland Park Estates Ashley Crossing Estates Audubon Oak Townhomes Audubon Plantation Estates Audubon Plantation Estates Phase Two Audubon Trace Estates Aurora Park Estates Austin Court Estates Austin Village Estates Austin Village South Estates Avalon Estates Avies Knoll Estates Avondale Estates Azalea Park Estates Bacquet Addition Barony Estates Barry Billeaud Estates Barry Doucet Addition Beau Champs Estates Beau Chenes Development Beau Rivage Estates Beau Savanne Estates Beaullieu Estates Beaux Chenes Estates Begnaud  Estates Belle Acres Estates Belle Chase Garden Estates Belle Terre Estates Bendel Gardens Estates Beverly Heights Estates Bissonnet Villa Estates Block Estates Bois De Lafayette Estates Boring Woods Estates Boulder Creek Estates Briarmeadow Estates Brightwood Estates Brookshire Gardens Estates Brookshire South Estates Buildmore Estates Cabana Row Estates Camellia Condominiums Canadian Heights Estates Cane Place Estates Cane Ridge Estates Canebrake Estates Carmel Ridge Estates Carmel Village Estates Carrollton Park On The River Estates Phase 2 Castle Square Estates Central Park Estates Champions Estates Charleston Place Estates Chelsea Estates Cherbourg Estates College Green Estates College Park Addition Colonies Estates Comeaux Place Estates Commercial Park West Estates Congress Center Estates Congress Gate Co Estates Congress West Estates Cordoba Square Estates Corita Court Estates Cornay Addition Corporate Block Estates Cottages At East Bayou Estates Cottages At Wentworth Estates Cottages On The Green Estates Country Breeze Estates Couret Farms Estates Crestlawn Court Estates Darphin Estates Delmar Estates Delmar Estates South Delmar Estates West Demanade Park Estates Demanade Place Estates Diamondhead Estates Doucet-Trahan Estates Dover Park Estates Ducharme Court Estates Dugas A.D. Estates East Bayou Oaks Estates Edgewater Estates Elan Estates Eloi Plantation Estates Ember Ridge Estates Emerald Gardens Estates Emerald Lake Estates Emerite Drive Estates Enclave Estates Energy Center Estates Essen Heights Estates Euphmond Broussard Estates Eureka Plantation Estates Fair Oaks Estates Fairfield Estates Fairground Place Estates Fairgrounds Place Estates Phase Three Farrel Place Estates Fernewood Estates Fiero Estates Five H Plaza Estates Flagg On The Green Estates Flagstone Estates Estates Florence Gardens Estates Floridian Flatts Estates Foreman Oaks Estates Fountain View Estates Fountainbleu Drive Estates Fountainhead Estates Fox Chase Estates Frenchmans Creek Estates Gateway Park Estates Gentilly Park Estates Georgetown Square Estates Girard P M Addition Glade Estates Golf Course Addition Estates Grand Glade Estates Grand Haven Estates Grand Pointe Estates Grand Pointe Estates Phase Three Grand Pointe Village Estates Grandview Terrace Estates Green Leaf Estates Green Meadow Estates Green Meadows Estates Greenbriar 4 Estates Greenbriar Estates Greyford Estates Greyford Estates Hampton Place Estates Harbor Lights Estates Harvest Pointe Heather Oaks Estates Heritage Trace Estates Hernandez Heights Heros Point Estates  Heymann Oil Center Estates Hidden Cove Estates Hidden Ridge Estates Highland Meadows Estates Holden Heights Estates Holiday Gardens Estates Holiday Meadows Estates Holiday Mobile Estates Holiday Park Estates Holiday Roman Village Estates Hopkins Addition Hummingbird Estates Hunters Forest Estates Huntington Park Estates Idlewood Park Estates Ile Des Cannes Estates Island Oaks Plantation Estates Ivanhoe Estates Jefferson  treet Condominiums Jordan Estates Judice Meadows Townhomes King Ranch Estates Kings Country Estates Kings Cove Estates Kings Haven Estates Kingswood Estates La Bon Vie Estates La Cheniere Estates La Neuville Holiday Estates La Village Estates Lafayette Heights Estates Lafittes Landing Estates Lake Pointe Estates L’alle De Chenes Estates L’ambiance Villa Estates Lebesque Estates Leland Heights Estates Live Oak Park Estates Live Oak Townhomes Louisiana Avenue Townhomes Lucien Pete Huval Addition Magnolia Park Estates Mainstreet At River Ranch Estates Malapart Place Estates Manor Park Estates Maple Grove Estates Marcon Industrial Park Estates Martin Oaks Estates Mccomb Addition The Meadows Estates Metairie Park Estates Mill Creek Cove Estates Mills Addition Estates Miramar Estates Montgomery Crossing Estates Montgomery Park Estates Monticello Estates Mooreland Heigths Estates Morgan Estates Moss Bluffs Estates Mouton Addition Myrtle Square Estates Nezida Roy Estates Northerland Estates Northside Subdivision Extension 1 Oak Glen Place Estates Oak Grove Estates Oak Park Estates Oak Trace Estates Oakbourne Estates Oaklawn Estates Oaklawn Heights Estates Oaklawn Park Estates The Oaks Estates Oakwater Estates Oil Center Estates Old Corporation Estates Olde Towne At Millcreek Estates One Legacy Place Estates Orgeron Heights Estates Parkdale Estates Parkerson Estates Parkerson S R Addition Parkview Estates Pecan Grove Addition Peck Villa Estates Petroleum Square Estates Pine Acres Estates The Plantation Estates Plateau Manor Estates Plaza Village Estates Plaza Village Condominiums Prairie Sorrell Heights Estates Prairie View Estates Pride’s Crossing Estates Quail Hollow Estates Queens Harbor Estates Raintree Townhomes Estates Richland Heights Estates Richland Heights Estates Richter Park Estates Ritcher Park Estates River Birch Estates River Gardens Townhomes River Oaks Estates River Ranch Estates River Trace Estates Rivergate Estates Rivers Bend Estates Riverview Estates Ronald & Diann Comeaux Estates Rose Hill Park Estates Rosemont Roy Estates Phase Two Royalton Park Estates Rue Du Belier Cove Estates Sabal Palms Estates Salsman-Leblanc Estates Sara Dee Park Garden Estates Sawgrass Estates Sawgrass Park Estates Sawgrass Park Estates Phase 2 Senior High Heights Estates The Settlement Estates Shady Crest Estates Sherwood Farms Estates Smith Addition Estates Snodgrass Addition Estates South College Estates Southern Heights Estates Southpark Industrial Estates Souvenir Heights Estates St Michaels Cove Estates St. Germaine Estates Steiner Bend Garden Homes Estates Phase I Sterling Grove Estates Sternberg Heights Estates Stone Road Estates Stonehaven On The River Estates Suburban Acres Estates Suburban Oaks Estates Sun Valley Estates Sunstone Estates Tarpy Estates The Courtyard Estates The Gardens Estates The Park Estates The Quarter Townhomes Estates The Reserve At Woodlake Three Fountains Condominiums Timberwood Estates Tolson Oaks Estates The Township Estates Township South Estates Trewhill Estates Truman Addition Tuscany Estates Van Way Devel Estates Vanway Commerical Industrial Estates Veazey Villa Estates Vermilion Bluff Estates Vermillion Square Estates  Vermillionville Estates Versailles Square Estates Victoria Village Estates Vieux Carre Estates Vieux Chenes Estates Vieux Orleans Estates Villa Hernandez Estates Villas At Chateau Mirage Estates Virginia Hills Estates Voorhies Addition Walkers Lake Estates Walkers Village Estates Warehouse Dist Lofts Washington Heigths Wellington Ridge Estates West End Heights Estates West Park Estates West Winds Park Estates West Winds Park Estates Phase Two Westmark Center Estates Westpark Estates Whitney Oaks Estates Whittington Estates Whittington Heights Estates Whittington Oaks Estates Whittington Trail Estates Willow Bend Estates Willow Run Townhomes Estates Willowdale Park Estates Winrock Valley Estates Wolf Creek Estates Woodland Park Estates Young Oaks Estates Milton Ossum Scott Youngsville Pointe Coupee Parish Fordoche Simmons Estates Morganza New Roads Beau Riviere Condominiums Berthier Major Addition Claiborne Subdivision Deville Addition Nru Estates Fairfield Estates False River Acres Estates Hewes Estates Jackson Square Estates Lakeside Village Estates Major Brothers Estates Morningside Estates River Mill Estates River Plantation Estates River Run Estates Sugar Fields Estates Ventress Cypress Cove Estates False River Park Estates Ptflsrvr Estates Riverbend Estates Rivers Bend Estates Waterloo Estates Saint Landry Parish Arnaudville  Cankton  Eunice  Grand Coteau Krotz Springs Lawtell  Leonville  Melville  Opelousas  Palmetto  Port Barre North Wilderness Estates Sunset Washington Saint Martin Parish Breaux Bridge Cade Catahoula Cecilia Henderson Parks Saint Martinville Vermilion Parish Abbeville  Erath  Gueydan  Kaplan  Maurice West Baton Rouge Parish Addis Brusly Erwinville Angelique Estates Poydras Country Estates Shelby Estates Port Allen Acadian Bayou Estates Airline Park Estates Antonia Plantation Estates Blanchard Estates Calumet Estates Capital View Estates Carolina Estates Cohn Estates Colonial Acres Estates Elm Grove Place Estates Esperanza Estates Fairview Estates Flynnland Estates Larguier Estates Lobdell Acres Estates Lone Oak Estates Lynndale Estates Montrachet Acres Estates The Oaks Estates Parkwood Farms Estates Poydras Country Estates Prejean Estates Rose Hill Plantation Trace Estates Roseland Trace Estates Shady Willows Estates Town Of West Baton Rouge Estates Vieux Riviere Estates West Lake Estates West Palm Estates West Shore Business Park Estates Westside Village Estates Willows @ Antonia Plantation Estates The Woodlands Estates West Feliciana Parish Saint Francisville

Join us at Real Estate Social

Comments are closed.