Credit score « Home Loan Information

23Oct/100

What are closing costs?

It would be simple to say “closing costs” are the amount of money required to be brought to the closing table at the time of purchase or refinance. Oh that it were that simple yet it is not. In fact different agencies and organizations have different definitions for the same term. Perhaps we can do some good here and provide the true definition for the components of closing costs, establish which costs go where and which costs are negotiable.

If you want to say closing costs are the total fees you bring to the closing table that would include this list and maybe more in some cases:

Appraisal fee – to the appraiser
Pie Chart of Closing Costs
Credit score fee – to the credit bureau
Origination fee – to the loan officer
Funding fee – to the lender
Underwriting fee – to the lender
Processing fee – to the processing company
Broker fee – to the mortgage broker (if there is one)
Recording fee – to the county courthouse
Loan registration fee – to the state department of banking and finance
Title exam – to the title company/private investigator
Attorney fee – to the closing attorney
Attorney’s wire fee – to the attorney
Lender’s title insurance – to the title insurance company
Owner’s title insurance – to the title insurance company
Real estate taxes and escrow – to the state, county, city where due
Home owners insurance – to the owner’s insurance company
HOA fees – to the HOA/COA

Some of these fees are only closing costs because the lender, unless the borrower chooses to waive escrows of taxes, insurance and HOA, would be required to be paid over time anyway. In fact most HOAs require an initiation fee even if you are paying cash. That is the best way to think of closing costs as associated with purchasing a home anyway: which fees would exist even if there were no lender: attorney fees, recording fees, appraisal fee, home owner’s insurance, etc.

Two of the biggest fees associated with the purchase of a home are not considered closing costs and those are the down payment and the real estate broker fees. Brokerage fees are not considered a closing cost because they are added to the sales price and the seller pays them and down payment is going straight to the purchase of the home. If we counted down payment as a closing cost then someone paying cash would be considered to be paying 100% closing costs.

What about “no closing costs” loans? Simple. They don’t exist. The buyer or home owner who is refinancing pays the costs either in cash, from the proceeds of the loan, using a down payment assistance program, or by the lender increasing the rate enough to earn more in interest. None of those closing costs go away when they are required. The attorney doesn’t work for free, the appraiser doesn’t work for free, the loan officer, processor and underwriters do not work for free.

Hopefully understanding these fees and where they go will help you in your next purchase or refinance to understand the cost and how to better manage or prepare for your closing.

*The set of closing costs used for this chart are typical for a mortgage broker. They will vary from state to state and lender to lender … but not by much.

Good-faith estimates bring higher closing costs (sfgate.com)
Survey: Mortgage closing costs 37% higher (usatoday.com)
New rules limit too-low estimates of closing costs (knoxnews.com)
What are “seller concessions”? (kennycook.com)

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Tagged as: closing costs, Credit score, Insurance, Loan, Origination fee, Real Estate, Refinancing No Comments

18Oct/100

Dangers of shopping mortgage rates online

You’ve seen those ads touting some crazy low number like 2.125% home loans! The first thing I usually notice is there is no APR advertised on the same line and in the same font – federal violation. This is often my first hint this is a lead generation company and not an actual lender. Lead generations companies, so it seems, can advertise just about anything they like since they are not actually providing home loans. In my opinion those who buy leads from companies who advertise should be held equally accountable – not likely to make me popular among “the liars club”.

Some months ago I wrote a post about this subject and even received a couple of phone calls from mortgage brokers, mostly out west, who would like to have done me bodily harm. We all know people in the industry who make outrageous claims they can very rarely deliver and weasel their way around the law by publishing a mult-paragraph disclaimer secreted away on some difficult to find asterisk centric page.

Even with the rates you see published by Zillow and BankRate, both reputable companies, you will often find the brokers and lenders who feed those companies the rates pushing it to the very lowest number possible to be achieved under the best circumstance on the best of days. Those rates never take into consideration anything except the best of circumstances and to really see the full picture one would need access to the qualifying factors – which are will hidden if published at all.

Understanding mortgage pricing is like understanding pricing for any other service: the higher the risk the higher the cost. Lenders base mortgage rate factors on credit score, loan amount, property type, and other factors due to the risk provided from those types of loans over the years. It’s no secret that the pool of borrowers of people with 720 or higher credit scores, 20% or more down payment and purchasing a single family home in the $200,000 range are less likely to miss a payment or default on the loan than the pool of borrowers with credit scores around 630 and 3.5% down on the same home. It’s just a fact of numbers.

So when you see interest rates advertised your first response should be doubt – and that will serve you well. If you have a middle credit score of 740 or higher, are paying at least 20% down on a home within the conventional mortgage limits for your area, you have a good income and ample assets then it is possible you will qualify for the rates you see advertised online.

BIG WARNING: There is a, an I use the term very loosely, “mortgage company” which advertises regularly on one of these type websites and their rates always seem about a full 1% lower than everyone else’s. Every day they take thousands of phone calls of people who do not qualify for those rates. Do yourself a favor – find a reputable lender who doesn’t use parlor tricks and flashy numbers to steal your trust. Hang up, call someone local and trustworthy, and give them your business.

ABOUT ONLINE LEAD COMPANIES: Most online lead companies will sell your information to 3 to 5 (or more) people. Even though the lead company may have advertised some obnoxiously low interest rate the company who purchases your lead is under no obligation to offer it. These mortgage brokers will pay as much as $50 or more for your phone number and you bet they are going to do whatever they can to get their money back. Don’t get me wrong, some of these lead buyers are the most honest and ethical people you will meet. Unfortunately many of the lead companies have neither honesty nor ethics.

Mortgages: Preventing Credit Score Dings (nytimes.com)
Benefit of higher credit score dwindles at top end (sfgate.com)
U.S. 30-year mortgage rates fell in week – Zillow (reuters.com)

Tagged as: Credit score, interest rates, Loan, Mortgage broker, Mortgage loan, mortgages No Comments

14Jul/101

Bad credit home loans

: Image via Wikipedia

“Anyone can qualify regardless of credit”. “No application refused”. “No minimum credit score required”. The ads are still out there and mostly on Craigslist. Generally those ads are not from mortgage lenders or banks but from mortgage lead generation companies. Unlike mortgage companies lead generators are not required to be licensed, don’t offer home loan services and are not held to the strict standards of mortgage companies in advertising so they make a lot of outrageous claims hoping to get as many people to give them their information as possible.

The truth is there just aren’t any conventional home loans for people with “bad credit”. Not even FHA as is often misconstrued. FHA home loans, just like conventional home loans, actually require a relatively clean credit history although they do allow some negative reporting – even that is limited to scope and history.

Tagged as: Credit history, Credit score, Debt, Loan, mortgage Continue reading

29Apr/100

3 important points to mortgage qualifications

The mortgage process, especially for those who are denied or delayed, is an enigma to most. Understanding a few basics, three in fact, can help open the windows and let some light on the mysterious inner-workings of mortgage lenders. Getting denied or being quoted a higher rate than you heard advertised need not be a huge question mark.

Every conventional lender, those who lend according to Fannie Mae and Freddie Mac guidelines, builds their lending criteria equal to or more stringent than the guidelines offered by those to mortgage holding giants – unless they are selling to Ginnie Mae or another mega investor. In those guidelines are some very simple first steps so important to the lending process they can be the cause for the vast majority of denials or increase costs of credit.

: Image via Wikipedia

Whether you are applying for money to purchase a home or to refinance one you currently own these three points are crucial to your success in obtaining a good mortgage.

Number One: Employment and Income

Chances are if you skip around from job to job, especially in different industries, and you have large gaps of time between them you will be considered too high risk at least for a prime loan. Even if you have steady employment history if your income is not verifiable to the amount you need for a good debt ratio you can also be denied or incur the cost of risk in the form of a higher interest rate.

Tagged as: Credit score, Fannie Mae, Financial Services, Freddie Mac, Loan, mortgage, Mortgage loan Continue reading

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Daily Rates for Qualified Buyers

	Today	Last Week
30 Year Fixed	3.50%	3.61%
15 Year Fixed	2.88%	2.92%
5/1 ARM	2.31%	2.51%
See more mortgage rates at Zillow.com

(Note: These are the lowest rates possible offered through advertisers and lead buyers at the company providing the data. They may require discount points.)