If you would like us to review your situation and give you an estimate of what closing costs you may encounter, please feel free to contact us.  If not, feel free to read the rest of the article!

Continued: Some of these closing costs are charged by the mortgage company itself, while others are payable to various parties. Here’s a little breakdown on some of the fees you may be charged, and who’s getting your money.

One of the first fees you’re going to run into is the Application Fee. This is charged when you fill out your initial application (the 1003) and is non-refundable. This covers the costs your lender pays in regard to paperwork, or maybe even your credit report when you got pre-approved.

Next is the Loan Origination Fee, which is charged by the lender to cover all the costs that are associated with processing your loan. This also covers their administrative costs. This fee is generally charged to you in the form of “points”, where one point equals one % of the amount you are planning on borrowing.  So for example, if you are borrowing $150,000, one point is equal to $1,500.

There is actually a symbiotic relationship between “points” and the interest rate you obtain.  It is possible to find a loan that charges little or no points, but you will see this reflected to you in a higher interest rate.  You can also obtain a lower interest rate by paying extra points up front.

One fee that you will regularly encounter (and which is actually usually optional) is the home inspection fee. In the beginning phases of obtaining a home loan you will be advised to get an inspection for your new house, and it is a very smart move.  Mortgages are often stopped dead in their tracks if you get as far as the appraisal and it turns out your foundation is destroyed, or if termites have infested the property.

Next on the list is the appraisal fee.  Depending on what type of loan you are getting, your lender will more than likely require a new appraisal of the house before they fund your mortgage.  This is done because the bank wants to make absolutely certain that the house you are buying is worth the amount you are paying for it. This fee is usually anywhere from $300-$500.

Some more of your closing costs will come from paying a premium for Private Mortgage Insurance (PMI). Mortgage insurance is paid to protect the lender in case you default on your loan, and if your down payment is less than twenty percent of the purchase price, you will be required to pay this premium no matter what.  For closing, you will have to prepay a portion of this when you sign the final documents. The good news is, though, once you reach 20% of the value, the Mortgage Insurance is removed from your monthly payment automatically, saving you money!

Prepaid “per diem” interest is another fee you will encounter at closing.  You’ll have to pay this to cover the amount of interest that accrues from the time your mortgage is funded until you make your first payment.

The last few random fees you will see can be things such as messenger, recording, and notary fees. These are all commonplace and not at all unusual.

In conclusion, while all these costs may seem a little daunting, it is worth noting that they will be all listed out for you in an organized fashion when you get to your closing and are ready to sign.  A good loan officer will notify and explain to you about all these costs beforehand, so you should have a good idea of how much money to bring to closing, and what all your cash is going towards. Soon enough you will be done with the paperwork and ready to move into your new home!

If you have any questions about closing costs, don’t hesitate to CONTACT US and we can explain it to you in even better detail!

The truth is, few thing in life can compare to the fun filled adventure that is refinancing your mortgage. Wait, what did I just say? That doesn’t seem quite right.

The truth is, dealing with a refinance can be quite the arduous process, and for the most part, it’s not fun at all. This can be attributed to the abundance of paperwork to fill out, the random lender fees, and the sheer fact that most people don’t like modifying their mortgage to begin with.  But there is a reason so many people subject themselves to these hardships, and there are times when refinancing your mortgage is an extremely smart decision that can save you thousands of dollars over the life of your loan.

You may have heard on the news that interest rates have been hovering around historic lows lately, and because of this, thousands of homeowners have refinanced their mortgage in order to cut their monthly payment. You might be wondering how this works.  Basically, by replacing (refinancing) your old mortgage with a new one (that offers a lower interest rate), you can possibly save  hundreds of dollars per month. Imagine if your monthly mortgage went from $1500 a month to $1200. Wouldn’t it be nice?

In fact, lowering your monthly payment may not be the only situation where a refinance would benefit you. You would also want to consider this if the mortgage you are in is (the dreaded) adjustable rate mortgage.  If you find yourself in this situation,  and interest rates are expected to rise, it would be extremely smart to lock yourself in a lower, fixed rate that will keep you sleeping soundly no matter how high rates may sail. And let me tell you, the sky is the limit.

Another reason a person may be interested in refinancing their mortgage is so they can take cash out of the equity they built up over the years. Instead of just refinancing for the amount they currently owe, they may pull out additional funds to use for improvements on their house, starting a new business, or even putting their kids through college.

Of course though, just like everything else, refinancing a mortgage is not free. It would be nice if it was, but that’s just not the case. While you might catch a break and your lender may help out with some of the charges, it is extremely likely that you will still be looking at several thousand dollars in closing costs to pay for a quality refinance. Obviously you must consider these closing costs when deciding whether or not to follow through with the refinance. The trick is figuring out how long it will take before the lower monthly payments make up for the added fees and closing costs. We call this the “break even” point.  Once this point is met, each month afterward you start seeing the extra cash in your pocket.

The biggest thing to consider in regards to this (if you’re doing the refi to save money) is how long you plan on living in the house, and the difference between your old rate and the new one. Long story short, the bigger the difference in rate and the longer you plan on living there, the quicker you start saving moolah!  Wahoo!

To find out if doing a refinance would be cost effective for you, you need to find out what the break even point would be for your mortgage.  To figure this, simply divide the amount of closing costs by the amount of monthly savings.  For example, if you are saving $300 a month, and your closing costs are $5000, just do the math:

$5000 / $300 = 16.67

Meaning that after a year and 4 months (approximately) you would start seeing the savings.  So if you are planning on living in your house longer than this, a refinance would be beneficial to you!

As always, if you have any questions or comments, or if you are interested in a refinance yourself (and you don’t feel like doing any math), don’t hesitate to CONTACT US. We will evaluate your current situation and let you know if a refinance might work!

- Pate

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