OCR Text |
Show Page i - flAile Wagkfflil. ftDAlLV IfcfeftiS, Friday, VtSMt 27,lfe Welcome to Closing Costs You've made the decision to and you feel good buy a home about it. You carefully considered and compared the price. You chose a low fixed rate mortgage and feel - good about that too. You are putting a down payment of 5 percent on the loan and still feeling good, until... Here come the closing costs! And suddenly, you feel less than good. Sure, you knew there were going to be costs involved with the mortgage loan, and even the total amount seems in line. But actually understanding the purpose of each itemized fee and what it's really there for is what's giving you that kind of pain real "BANG-A-ROO- " that the guy always talks about in the Excedrin commercials - (you know... the actor Robert Urich that played that Dan Tanna detective guy, and was in about 500 mini-series- Welcome to "Closing Costs 101" no aspirin required. In reality, the majority of closing fees are standard and fairly simple to understand, with 2 basic categories: Recurring and Nonrecurring. Recurring fees are those that you will pay at the closing of the loan, and also throughout the fees life of the loan. are those that (you guessed it) only occur once, at the close of your Non-recurri- loan. First let's review the Recurring fees. These fees include your hazard insurance policy, mortgage insurance, property taxes, prepaid interest and impound reserves. 101 ment to approximately $40 - no aspirin required month-ly)- - Property taxes are due at the end of the assessed year, and are reassessed every 4 years. Prepaid interest. On a mortgage loan, when you make your November payment, you are paying the interest accrued the previous month, during October. If you closed a loan on October 25th. you would pay six day's interest to cover you through the end of the month. When November rolls around, you would not have a payment due, as October's interest was already collected, but would begin your payments in December A Financing Home (which pays November's interest). Prepaid interest is the amount of due between the closing interest Your hazard insurance policy the end of the current and (or, homeowners policy) is paid at day month. closing, for one year in advance. An impound account is set up The premium varies depending on for the borrower to pay one monththe insurance company you that includes principle, choose, your loan amount, and ly payment insurance and morttaxes, interest, type of coverage (ranging from if due. (PITI, MI). insurance, $200 - $400 per year for mortgages gage An impound account is required from $100,000 to $400,000). for any loan with less than 20 peris down payment, and usually cent or MI, Mortgage insurance, if the borrower puts optional on all other loans At closonly required less than 20 percent down. It can ing, you will pay an additional one be paid monthly and is based on or two month's taxes, insurance the loan amount. (A 5 percent and mortgage insurance to "cushdown payment requires a monthly ion" the account. closing costs payment of approximately $64 for include any fees for title work, a $100,000 loan amount. 10 percent down decreases the MI pay credit reports, appraisal, origina 1 -- tion, points, documentation, etc. rule fees include the settlement fee to the closing officer ($75 $95), recording, filing, etc. ($50 $85), and title insurance (based on loan amount ie: $360 for $100,000 for gradually rising to $575 so and on). $200,000 Credit report. Although you can a Resiget a simple TRW for free, Credit dential Mortgage Report is three combines and required, repositories (S40 - $50). Appraisal This depends on the type of home, but a single family residence appraisal costs an average of $275 $350. 1 Origination Fee. Generally to .5 percent of the loan amount. Discount Points are each percent of the loan amount, used to buy down the interest rate. Tax Service Fee: A reporting statement fee to cover year-en- d detailing the amount of interest you have paid during the year, to be used for tax deduction purposes with the IRS, usually $65 $75. -- -- -- 1 1 -- Documentation, Processing, Underwriting, etc. These fees are sometimes also referred to as application fees, or by another name, and range from $150 - $600 total. Certain loan programs require higher fees, or perhaps none at all. Before you sharpen your pencil and start adc.ng, let me give you an example of total fees for a Prepare yourself for a credit check One of the reporting documents that you are required to sign for, when you apply for a home mortgage, is the one that gives the lender permission to check your credit history. The lender uses the credit report to make a determination whether or not a person consistently meets his or her financial obligations. It is one of the main loan lender factors the long-teruses in deciding whether or not to approve your mortgage loan request. A credit check reveals if you have paid your bills on time and, if not, how late those payments were made if you have outstanding debt that Mas never repaid; if you have declared bankruptcy; how many credit card and other credit lines you have open, the 20 percent of the time - or that you have some explaining to do. For example, if the only blemish on your credit report is a late payment on a credit card, you may be asked to write a letter explaining why the payment was late. If the late payment "offense" is more serious -unpaid debt, several late payments. m balances and limits, and more. It tell the bank whether you have established a consistent record of paying bills and repaying debit in a timely manner. The back side to this report is if a person has a history of late payments or has taken on more debt at any given time in his or her credit history than he or she can successfully handle. This information is quite valuable to the lender as they will make a decision whether or noi they believe you can be trusted to make monthly mortgage payments on time for an extended period of time. The credit check may reveal w ill that you have perfect credit -- something thai happens only about On Building A Home a missed car payment, etc. - it will be harder to explain away. A good reputable lender is usually willing to work with you to repair your credit or you may be deemed and be presently not credit-worth- y turned down. There is wisdom in being aware on a regular basis of your credit status. You can subscribe to a regular report on your credit status through a company like TRW or similar credit service. The service runs approximately $65 a year and vou will know from their report whenever anyone makes an inquiry on' your credit,' or if some one is reporting a negative mark on your credit. Three major credit bureaus operate in the United States and they are obligated to give you a copy of your credit report upon request. If you believe that there exists a negative mark on your credit, the credit bureau will usually send a copy of your credit report without charge. A good reason for checking regularly on your personal credit is that your name may get mixed up with someone else's and the lender may get a completely wrong picture of your finances. Another good reason for checking your credit report regularly is to determine if you have received a "negative" mark, and as you are able to explain the circumstances of the issue, getting that mark removed or modified. I have had the challenge of having a report in error placed on my personal credit reporting. I am still working to get it removed from one of the national reporting agencies after six years. The most frustrating problem with it has been that il is impossible to talk to a real "live" person. Telephone calls alwavs result in a telephone messaging service with multiple lorvardin numbers to dial. You cannot gel specific with the mcchanied receiving services and know vour problem is resolved. Mailing or faxing the information is another good alternative, but it is possible you' may not cm' up with a precise final solution. An important tip to remember is that the lender will check your credit twice - once shortly after you apply for the mortgage, and once again just days before loan approval. The lender does this to make certain that you haven't substantially increased your debt burden by buying a new car, boat, or motor home and put yourself and the mortgage company in jeopardy. CJ Jones is president of the Utah Valley Home Builders Association. loan amount. fees will total $2,165 $2,615 based on 1 percent origina tion lee ana no discount points. The Recurring costs will only include the hazard insurance if you are putting at least 20 nercem down. Add three month's reserves for less down payment for a total of $225 - $ ; 00 prepaid interest IT IS VERY IMPORTANT, whale shopping for the best closing costs to understand that the interest rate plays a huge part. For instance. a lender quoting no origination fee.1 or substantially iess closing cost might also have a higher rate. Here is an example. Lei's compare an interest rate of 7.75 percent and closing costs of 5 .500 to an inter est rate of 7.375 and S2.500. Sav ing $1,000 in closing costs may id attractive, but the interest rate will save you much more over time ($315 every year for a loan o! $100,000, and $550 every vear for a loan of $175,000). If you are attempting to pay a: little as possible at closing, it is rel atively simple to have the buildei or seller to contribute toward you closing costs. For instance, let say your negotiated price with th seller is $150,000. and you botl feel this is a fair price. Now mal that price $152,500. and have tin seller pay $2,500 ot your closm fees. The seller still gets hi $150,000, and you are able t effectively finance the fees into thi loan. It really is quite simple. the family sie bottle aspirin at home - and tfJ headaches with it. Mark Greer is one of the uwnt of Atherton Monvape. Colun: suggestions and loan questions a' welcome at his office in Jumesiov. Square, Provo, or bx calling .?. 6334. $100,000 i efjcDnih) Hernia The Home Magazine every Friday by The is published Daily Herald Advertising To placa a classified display ad contact Sco't Murwv Echo Wnah: Rhonda 3 Pha-Crai- Shorts 344-253- 0 Deadline is noon the f "fl. publication 3"' ,c To place news items contact Kevin To place a classified aa :a'. Have a snack or meal before you go out. Sc: : Nienn-"- -- - |