Purchasing - Don't Be Afraid to Find Out if Someone Else Can Pay Closing Costs for You

Closing costs can be paid by the seller, buyer or lender

There are certain standard costs associated with closing on the sale of a house. These fees are split between the buyer and the seller, as spelled out in the sales contract. We can structure your purchase where the seller will pay maximum closing costs.

• If you are doing FHA financing, the seller can pay up to 6% of the closing costs.
• With conventional financing at 80%, the seller also can pay 6%.
• At 90% financing conventional the rule is the seller can only pay 3% closing costs.

As your realtor negotiates the sales contract for you, we will tell him or her that we need to structure the financing a certain way to mimimize closing costs paid out of pocket.

I will walk you through the closing costs, answering any questions you may have explaining which costs are decreed by law to be yours and which are negotiable.

The Good Faith Estimate is a standard document that is supposed to spell out the costs associated with your loan. When shopping for a mortgage it is important to get a good estimate. The Good Faith estimate has changed as of 1-1-2010 so now the consumer has much more protection against mistakes on the part of the loan officer. In fact if mistakes are made, the loan officer pays the difference.

Please see an article I wrote regarding the Good Faith estimate. Oct 2009

http://www.huliq.com/1/84951/review-good-faith-estimate-mortgage-rates

It never stops to amaze me what some lenders pass for a good faith estimate. Typically when a customer starts shopping for his or her mortgage lender they will start by calling around to find the lowest mortgage rate.

This is a cumbersome process and usually the customer will end up with some lender mentioned by some person to be honorable and trustworthy. It is kind of like finding a car mechanic; you want to hear from somebody that he or she is a “good guy and they will treat you right”.

The other day I took my car to the dealer for an oil change and they told me I needed brakes $180 (which I knew), a new computer $600, new gasket seals $500 on the engine and suggested a couple other items that I could conquer if I was feeling ambitious. So I changed my oil and went home. Two weeks later, I fixed my brakes at another dealer and all of those other problems miraculously disappeared. The same thing can happen when shopping for the lowest mortgage rates. Buy the things you need and don’t get carried away with the things you don’t need.  Sometimes I think borrowers get carried away wanting to buy points. Points can lower the rate but are they really worth it?

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If an estimate appears to be out of line, it probably is. Beware of mortgage rates that are too good to be true and beware of fees that may be omitted.

Whenever I am up against other mortgage companies, I tell the customer to fax me the other offer and I will circle all of the line items that are missing. Completely avoiding a fee will make the estimate appear much less regardless of interest rate. Quite often escrows are completely omitted to make the totals appear less. Every purchase requires one full year of insurance paid if you are escrowing or not. On a refinance, a major part of the discussion should be, am I escrowing, is the loan going to cover escrows, am I going to swop escrows that are due back to me from my current loan.

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Beware of internet mortgage companies who send a bare bones estimate with mortgage rates that are too good to be true. This is done partly because they process so many leads from customers who are surfing and partly because they know that internet prospects will probably collect 10 estimates and they want theirs to stand out. I once worked at a mortgage company for one day that believed in not disclosing the Good Faith Estimate. “Why do that, they are just going to shop you” Or the other response was, “if they want 3.5% tell them they can have it.” (Just don’t tell them it will cost 5 points.)

When shopping for the lowest interest rate, try to remember that it is not always a level playing field. If you are visiting the branch of a large bank, where the loan officer has one rate sheet he will not have very much flexibility. The rate is mandated by some higher up in secondary marketing who has built in the cost of overhead for all of the salaries and buildings of the entire organization. Let’s call him the dealer. The private mortgage guy is your local mechanic down the street, who may be a little less expensive because he has control over his own overhead and is willing to jump a little higher and cut cost a little more to gain a repeat customer for life.

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Buyers will receive a "Good Faith Estimate" of closing costs at the time the loan application is submitted to the lender. The estimate is based on the loan officer's past experience and may not include all the closing costs. I will be glad to review the "Good Faith Estimate," answering questions and highlighting missing costs and estimates I believe to be low.