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Closing Cost, Pre-Paid items and Escrow Charges

Mon, 09 Jun 2008 21:05:57 GMT

Closing Cost

These are cost directly associated with originating, processing , underwriting and closing the loan.

Some of the common Closing cost include:

Origination fee: This is the fee that that is charged by the firm that takes the loan application and starts the loan process. It is out of this fee that the loan originator is paid.

Loan Discount points: Typically this is a charge by the lender to offer a lower interest rate.

Underwriting, Document Preparation, Tax Service, Administration fees are charged by the ultimate lender typically at closing. These fees will vary from lender to lender.

In Georgia, state law requires an attorney actually close a loan transaction. There will charge fees to search the title of the property, provide owners and lenders title insurance and a binder for the policy at closing. The attorney will pass along any direct charges such as courier fees to mail payoff's of existing liens (such as mortgages), recording fees and pay taxes on the property or the transaction (such as the intangible tax and transfer taxes).

Pre-paid charges

This typically falls into two areas today Interest and Insurance. Interest is always paid in arrears (after you have used the money). If you close the loan on June 20th, your first mortgage payment will not be until August 1st. The August 1st payment pays the July interest. This creates a situation that the lender still wants to collect interest from June 20th until June 30th. This is done at closing.

As to insurance, the lender wants to make sure that you keep the property insured. If you are buying a home, the lender will require you to come to closing with a one year paid insurance policy. This is good for you as well.

Escrow charges

This establishs a savings account with the lender for your next property tax bill and the renewal on your homeowners insurance policy. You will pay 1/12th of your property tax bill and homeowners insurance along with the mortgage payment to the lender. This is helpful, so when these items come due, you forward them to the lender to pay out of the escrow account.

What's the big deal about closing cost?

Mon, 09 Jun 2008 20:33:34 GMT

Here is the real deal, you always write the check! Either you will pay them at closing or you will pay them in the form of a higher interest rate over time. The programs advertised on the radio stating that they (or the lender) pays your closing cost is a true statement. But they do not state that it comes at a cost to you.

The key to this whole process is to get the lender to give you choices. Insist on them providing you an estimate on the "no closing cost" option compared to one where you pay the closing cost. Make sure it dicloses not only the cost, but the interest rate and monthly payments as well. You are entitled to a Good Faith Estimate to review the cost of the transaction. If there are no cost then they should provide a Good Faith Estimate with no charges to you on the sheet. If they say they do not need to provide a Good Faith Estimate continue to shop until you find a lender that will provide you one.

Next time a description of Closing cost, Prepaid items and Escrow Charges.

What are your Mortgage Loan choices?

Wed, 02 Jan 2008 23:52:50 GMT

In order to understand mortgage loans we need to review basic terminolgy.

Loan term
This is the lenght of time, typically in years, the loan will be made with typically the expectation that the loan will be repaid by the end of the term (usually, 15,20, or 30 years). The payment are usually scheduled monthly on residential loans.

Amortization
This describes how the principal balance of your loan is reduced over time. Each monthly payment is comprised of two parts, interest and principal. The lender will subtract interest due from each payment first and the remaining amount will go to reduce the outstanding balance on the loan. If a loan is Fully Amortizing, the loan will be fully repaid by the end of the term. If the payments do not fully repay the loan over the term, the remaining balance will be due with the last payment at the end of the term. This is referred to as a balloon payment. Some loan are interest only, these loans do not have repayment of principal, so you owe the entire principal balance is due at the end of the loan term.

Interest Rate
Interest rate can be fixed or Adjustable. Fixed rate loans are set for the term of the loan. Adjustable rate loans(ARM) allow the interest rate to adjust at some predetermined increment, such as monthly, quarterly or annually. Once the interest rate adjust, the monthly payment will reset to amortize the balance over the remaining term of the loan.

Loan Choices
The most common loan is the 30 year fixed rate fully amortizing loan. This is one of the most stable loan programs available, as the payments will not change over the life of the loan. This loan is recommended for the person who will be in their home for three years or longer.

If you do not plan to stay in your home for more than 2 years, you may consider an ARM. There are ARM programs where the interest rate can be fixed for the first year, three year or five years then the interest rate will adjust. In today's market the the three and five year ARMs are not much different than the 30 year fixed loans.

Check back as more loan programs will be discussed.
If you have questions, call and ask for Alan Jennings and I will be happy to discuss any of these options with you. Our number is 770-928-4420.