Transaction Process |
Lending Overview
Home buyers should visit a
convenient lender to discuss their financial situation and to discuss
obtaining "pre-qualification" while looking for a house. You'll need
a down payment of 5% to 10% of the purchase price and the available funds
for the closing costs. These costs include title opinions, surveys, filing
fees and document preparation, as well as application fees and origination
fees. Visit our Glossary
if you need help with the terms expressed here.
Occasionally, some loans have
low to no fees, but carry a much higher rate. Inspect the amount of
additional interest over the life of the loan you'll be paying, so to get a
full understanding of the cost of these programs. There are many "programs"
that allow for little down payment, but carry higher fees that may need to
be absorbed by the seller, if they agree. Examples of these loans are FHA
and VA loans.
The best scenario is a low
fee loan, with a low interest rate. Of course! But you may find it is
extremely difficult to understand all the terms related to the mortgage
lending industry. One of the largest components of the closing costs
is the origination fee associated with the loan, usually expressed as "points".
For example, if the points were 1.5 on a $100,000 loan, the originator would
get paid $1,500 on your loan. Loan originators (your local contact) also get
paid a "yield spread premium" that is
like a volume discount which is paid to the loan originator directly by the
lender, outside of the closing. This too is expressed in terms of "points"
and can be anywhere from 0.25 all the way up to 4.5 points ($250 to $4,500
on the $100,000 loan) and can fluctuate with the daily swings in the market.
The higher the yield spread premium, the higher your rate will most likely
be.
When asking for an estimate
of costs, you may be able to get a "cap" on the fees or a written "guarantee"
from the loan originator that the costs to you will not go over what they
put on the "Good Faith Estimate" sheet. Too many times the estimate
sheet is incomplete, in order to appear more competitive, with additional
costs justified at the closing because "it was only an estimate". At the
closing is no time to deal with added costs, especially if you're tight on
funds. They should know all the costs if they have much experience, and you
should be leery of those who won't give you a good reason why they can't
give you a cap. Shop wisely and don't be afraid to ask lots of questions.
If you wish to have a
competitive comparison to any conventional loan you may have, go to the link
below and call the closing coordinator/loan specialist on staff at Maureen
Realty, Inc. We have closed tons of loans and property sales, and can help
you make an "apples to apples" decision. |
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