If you are thinking about buying a new home or refinancing an existing loan, it pays to shop for mortgage rates and closing costs. A number of places where you can get mortgage financing include banks, credit unions, savings and loan institutions and mortgage brokers. Shop and compare at least two of each of these.
Most lenders are on the up and up, but beware if you are quoted a very low rate initially. It may be changed at the last minute. If you have paid a nonrefundable deposit, you may be stuck. If you can, lock in a rate that will be guaranteed at closing.
Closing costs are all of the costs associated with establishing a new loan or refinancing an existing mortgage. These costs vary widely from lender to lender. It is estimated that closing costs can add up to 2 percent to 7 percent of your loan. Typical charges include an origination fee, title insurance, an appraisal fee and a credit report. If you want to buy a lower interest rate, you’ll pay points on top of other closing costs. One point is 1 percent of the principal balance of the loan.
There will be other costs at closing that are not fees, but you’ll need sufficient funds to close the loan. These costs include interest paid to your present and new lenders. This will substitute for a mortgage payment for a month following closing. You’ll also prepay escrow funds for your taxes and homeowner’s insurance.
There are numerous costs involved with closing that have been referred to as "junk" fees. You can cut these fees to the minimum by shopping carefully and comparing. If you are refinancing, ask the company carrying your present title insurance if they can re-issue your current policy at a re-issue rate.
When you apply for a loan, the lender is required by law to give you a "good-faith" estimate of your settlement costs. Unfortunately, nothing binds the lender to their estimates. Ask for a statement in writing that the estimates are not expected to change. Use the "good-faith" estimates and closely compare fees from each lender.
Here are examples of the range of costs for a $125,000 loan from the Aug. 30, 2002, issue of "USA Today": administrative fee, $45 to $725; application fee, $100 to $410; appraisal, $175 to $375; credit report, $8.50 to $65; commitment fee, $100 to $450; title insurance, $161 to $1,157; mortgage broker fee, $100 to $895; document preparation, $50 to $350; and processing fee, $99 to $850. There are many more costs.
If you averaged all the costs, the total you’d pay would be $3,167. The highest cost for all fees reported was $7,322 and the lowest was $829.
I’ll talk more about mortgages next week.