Month: July 2018

Mortgage Loan Closing Costs for Refinance Loans and Home Purchase

If you are going to obtain a mortgage loan, for whatever purpose (home purchase or refinance) you are going to pay closing costs…period. Let me clarify regarding a purchase of a home…the seller may pay some or even all the closing costs in a transaction, but it essentially works out to just lowering the purchase price of the home and reduces or eliminates the need for the buyer to come up with the cash or finance the closing costs.

While many mortgage lenders, brokers, bankers, advisors, or whoever may tell you that you can get a zero closing cost loan, the fact is, they simply don’t exist. One way or another you are going to pay/incurr closing costs.

That said, there are many ways to pay those closing costs:

  1. On a purchase, the seller may agree to pay some or all of the closing costs which reduces your cash outlay for closing costs
  2. In most cases, you may opt to take a higher interest rate in order to reduce or eliminate closing costs
  3. You can pay the closing costs in cash, at the closing table, eliminating the need to pay finance charges on the closing costs
  4. You can normally opt to have the closing costs included or rolled into the loan itself, reducing your cash outlay at closing

The above list does not cover all the possible options, however, it covers the basic options. The other options will simply be some variation of those listed above.

Estimating the closing costs
Items that are part of, or considered closing costs include:

  • Loan origination fee
  • Lenders fee – if using a mortgage broker
  • Credit report fee
  • Appraisal Fee
  • Processing Fee
  • Wire transfer Fee
  • Underwriting Fee
  • Survey
  • Title insurance
  • Closing or Escrow fee
  • Filing Fees
  • Attorney Fees
  • Pest inspection
  • Recording and/or transfer fees
  • Document Preparation
  • Notary Fee
  • Mailing or courier

Those are the major items that can be included as closing costs. Some are required, some are not. Some may be negotiable, others are not. Some will vary from lender to lender, lender to broker, broker to broker, or title company to title company, others will not.

Some items that are NOT considered closing costs, but need to be taken into consideration when trying to estimate any cash out of pocket or you loan size, include the followng:

  • Pre-paid interest
  • Mortgage Insurance Premium
  • Hazard insurance (homeowners insurance premiums
  • Reserves for payment of future property taxes, homeowners insurance, and mortgage insurance premiums
  • Flood insurance premiums
  • Property taxes that are due at the time of closing

Important Facts

  • Title insurance is regulated by the state insurance commission, varies from state to state, and is not negotiable
  • Flood insurance, if required (this is determined by the location of the propety, if it is in a flood zone) is not negotiable as to whether or not you need it, however, premiums are determined by whoever you choose as an insurance provider
  • The fees which are charged by the title company you close with include, but are not limited to; recording fees, fed-ex or mailing fees, closing or escrow fees, document preparation, and attorney fees (where required), do vary from title company to title company.
  • You have the right to choose the title company you close with – however, in a purchase transaction, in most cases, the seller has already established or set up preliminary escrow with a title company. That does not mean you can’t demand that it be changed. Just keep in mind that the seller may not be willing to change the title company and your sales contract may/should state where the closing will take place. That still does not mean that you can’t choose to change it, just expect some resistance
  • In most cases, an appraisal is required – the only exceptions to this are normally small home equity lines of credit and/or very low Loan to Value loans. In either case, the lender will make the final determination if an appraisal is required
  • It is a requirement that you be given a Good Faith Estimate of settlement charges within 3 days of applying for a mortgage loan – if you don’t get one, automatically, make sure you ask for one
  • You may only be charged the exact cost for the credit report and the appraisal

This article is simply trying to explain what closing costs are along with some specific facts about some general closing costs. It is just intended to give you an idea of what may be included as closing costs so you have a basic idea as to what to expect.

I would always suggest that you do some shopping around before deciding on a lender or broker to handle your mortgage transaction.

Obviously, the best source of good information is from friends and/or family members regarding someone or a company that they have used in the past. A referral to a good company or individual from someone you know and trust is normally the best place to start.

Ok, back to closing costs. It is imperative that when you are comparing costs from one company to another that you have all the facts and information straight from all companies that you are comparing. The Good Faith Estimate, in what you will normally utilize to compare costs. You simply need to make sure you are comparing “apples to apples”.

This is often easier said then done.

The most important area of comparison when comparing lender to lender or broker to lender, or broker to broker, is the top portion of the Good Faith Estimate. The origination fee and below in the “Items payable in connection with loan” is the heading of the section – it is numbered as 800.

This is really the only section where the company you are dealing with has any real control over. Unfortunately, the confusion normally begins with the lower sections of the Good Faith Estimate and here’s why;

1) Some companies will underestimate the Title Fees and recording fees

2) Some companies will try their best to give you accurate numbers for these other sections

Why do they do that?

Well, some will underestimate the costs simply to try to get your business. The unfortunate part about this, other than the outright lying, is that you will typically not find out about it until you are at the closing table. This is exactly what they are hoping for, taking the chance that you will figure it is too late to do anything about it and simply sign the documents.

Why can’t they give you exact numbers?

For some items they can, while other fees are strictly dependent upon a third party and they simply have no control over those costs. However, any mortgage broker or lender that has been in this business for any length of time, can certainly do a good job of getting you very close in your estimates of closing costs.

Let’s look at an example:

I am in Texas. Although I do some loans outside of Texas, I am most familiar with Texas and the corresponding fees so I will use Texas as an example.

Being in Texas, I know, based on the size of your loan, how to estimate your title insurance policy and escrow fees (the title company charges). Since, as stated in my last post on closing costs, title insurance is state regulated and the very same amount at every single title company based on your loan size, I can tell you with good certainty what your title insurance costs will be. Additionally, I can give you a very close estimate on the title company closing costs. So, with that information, there is no excuse while I can’t give you a very close approximation of all the fees associated with the title company.

Although the insurance and property taxes are not considered closing costs, they are still a very important part of the real estate transaction. And, again, the consumer is very concerned about their total cash outlay at closing, be it closing costs or pre-paid items. Therefore, I feel that it is essential that you get good information about these items as well on your Good Faith Estimate.

Getting back to the Texas example…I know, being in Texas, approximately what your homeowners insurance is going to cost and how many months of reserves are going to be required at closing. It is the same with property taxes. In Texas, for example, property taxes are always due in December (actually, they are not considered late until the end of January). So, for example, if you are refinancing your mortgage, in Texas, during the month of say, March and your first payment is not due until May 1st, then it will be required that the reserves for the taxes will be 5 months. The tax rates are published and are available, and besides that, I can estimate within a few hundred dollars, the actual property taxes on the property without knowing the exact caluclation for the city that the property resides in. If you simply use one of the higher tax rates in Texas for the estimate, then your estimate will be very close if not actually a little higher than the actual cost at closing. The other charges of the appraisal and a survey (if needed) are also costs that can be easily estimated very closely.

The bottom line is that any lender/broker should be able to give you very close estimates. As a matter of factly, there is no reason why the Good Faith Estimate should not be within a few hundred dollars of the actual costs and, hopefully, it is over-estimated so that the situation I spoke of earlier (coming to closing and finding out your costs are actually substanially higher) does not occur.

Unfortunately, there is nothing out there, as far as the law is concerned, that states that any Good Faith Estimate has to be within a certain dollar amount of the actual costs. At this time, you are having to rely on the person you are dealing with to give you good numbers. It has always been my practice to get my Good Faith Estimates as close as possible, and even over-estimating in cases where some costs are not known perhaps due to some unusual circumstances or not knowing, at this point in the process, if an item such as a survey will be required or not.

There is simply nothing to gain by under-estimating closing costs on the Good Faith Estimate. It tells the customer up-front, how much cash they are going to need, and saves any unnessessary aggrevation for the customer later, so why not get the numbers as close as possible?

On the other side of that issue, you are depending on someone to estimate the fees of a third party. As I hope I have made clear, while it is clearly not possible to get the exact numbers of the third party fees, it is surely very possible to get very close to the actual numbers. It simply takes some experience and a little bit of time. If you happen to get a loan officer, whether they work for a lender or a broker does not really matter, that is relatively new to the business, then they may not have the experience to get close to the actual numbers on their own. This is not an excuse at all, as there is surely someone there, who they work for, that has the experience to get the numbers close for you.

As of this writing, the best thing that you can do is gather the Good Faith Estimates of the companies that you have been talking to and do your best to make the comparisons accurate. With the information above, you should be able to work through the costs associated with the loan and discount those that you know will be very close, if not exactly the same, no matter who you decide to go with, and compare the remaining costs.

Once you have eliminated the essential “fixed costs” you can narrow your comparison down to the “variable costs” (for lack of a better term) for each companies Good Faith Estimate. One last note that is critical to comparison shopping is making a comparison regarding the rate and term of the loan along with the Good Faith Estimate to make your final decision. As stated in an earlier post, one company may offer you a better rate, but higher closing costs, while another is offering lower closing costs but a higher interest rate. That portion of the comparison is for another discussion and will be included in another post, however, the gist of that comes down to what situation works best for you.

Just remember that in all cases, you have the right to choose the title company, and, in most cases, even the appraiser (albeit with some limitations). If a company tries to tell you that you “must” use their title company to close the loan, you can choose to push the issue as there is no such requirement. To the contrary it is not lawful for anyone to force you to utilize any particular third party service. However, do keep in mind, that if you are buying a house, while you still have the same options of choosing the title company, a lot of times it is simply easier to use the title company that has been designated either by the seller or the builder. That is not to say that you should not comparison shop other title companies if you feel strongly about it, all I am saying that in a purchase transaction it is typically easier to use the designated company (especially if buying a new home from a builder) as chances are they are already familiar with the property and have already obtained a preliminary title report on the property itself.

Find the Best Mortgage Insurance Premium Plan for You

A mortgage insurance premium plan is required to be made in order to get a loan from various companies. It is for the bank’s own protection. It markets the risk of mortgage insurance quotes between the lending company and the plan provider. Mortgage expenses may be deductible. In order to be eligible, the plan cover must be for house purchase debts on a first or second house. Home purchase debts are loans in the case of which profits are used to build or buy and improve your residence. Thus house loan plans on cash-out refinanced and help-home equity loans won’t be eligible for the reduction.

Mortgage insurance premium expenses paid during the year are reported on specific forms which are sent out by the lender. Prepaid expenses can be designated over the term of the loan or 84 months (whichever period is shorter) under a judgment from the IRS (Notice 2008-15). Home loan expenses are itemized tax reduction type of costs and are revealed on Routine a Line 13. This is a separate short-term tax. It is efficient for mortgage plans released on or after Jan 1, 2007. Home loan insurance is a protection plan type of cover that reimburses lenders due to different types of loans obtained by them. It is a financial guaranty for the lender. When you are purchasing a home with less than 20% down or refinancing to 80% more than your home value, you have to choose a property type of insurance. It makes the lender’s money safe.

Many individuals think that a mortgage insurance premium plan is needless. But it allows individuals to buy their first house this way. Highest possible individuals cannot provide the whole price of their house by themselves. Mortgage insurance quotes help them get the money from various loan companies. Generally, if you make a big down transaction and have a plan to pay down your mortgage quickly, you will be able to decrease the amount of money that you owe. Generally, house mortgage interest is in fact any interest you pay on a loan that you have decided to secure with your house (main house or a second home). The loan may be a home loan used to buy a house, a second home loan, a line of credit or a house loan. You can deduct the house mortgage’s interest if certain conditions are met. You need to become familiar with such various conditions and make sure you follow the necessary steps to make the plans according to them.

What is Premium Financing for Life Insurance?

Premium Financing for Life Insurance can allow you to have what amounts to basically free Life Insurance. Just how does this work?

The basic idea behind premium financing for Life Insurance is that a loan is made by a bank or other financial entity and the proceeds from the loan are used to pay the premiums on a Life Insurance Policy. The loan is repaid with the proceeds from the death benefit. The loan can be collateralized or not although the cost of the loan will be considerably lower if it is.

Most financial advisors view premium financing as be a good option for individuals who have a large amount of non-capital assets such as real estate. The non-capital property can be used as collateral for the loan. The loan can be used to purchase a large amount of insurance without the need for the client to use any capital for the payment of premiums. This is a good way to get assets that may not normally be available for investment purposes to produce a better return.

Premium financing is considered to be a better deal when bank interest rates are low. This is because what is actually happening is another type of wager on performance. The borrower is wagering that the performance of the Life Insurance Policy will exceed the interest rate of the loan. During periods of low interest this wager has a much better chance of succeeding.

Another factor that makes premium financing more attractive is a shorter expected lifetime. The shorter the term of the loan, the less the interest payments will be. It would not be as wise to use premium financing to purchase a policy for a 21 year old man with the idea of paying off the loan with the death benefit. The life expectancy of the young man would be 50 or 60 years and the interest would have to be paid for this entire period. On the other hand, it would make more sense to do it in the case of a 65 year old man.

There are quite a few different methods of premium financing. It would be impossible to discuss them all here. The basic idea remains the same from plan to plan. It is to borrow the money to pay the premium with the idea of repaying the loan with the proceeds of the Insurance. If you have a large amount of collateral that is not being fully utilized, you might be a good candidate for such a plan.

Loan Protection Insurance Guide

When it comes to loan protection insurance, there are a few things you should understand before deciding if it is right for you. You need to understand both how it works and what this type of coverage costs.

How Loan Protection Insurance Works

Loan Protection Insurance is a type of optional insurance. It will make a monthly payment for you, if you are unable to make your monthly payment on a loan due to a predetermined set of circumstances. These circumstances may include unemployment, sickness, or an accident that causes a temporary disability. In most cases, you must be employed for at least six months when you purchase this insurance coverage.

Loan Protection Insurance can be used on a car loan, a personal loan, credit cards, or another type of financial loan. There are many choices available, so shop around to find your best price. You do not have to purchase loan protection insurance from the same place you got your loan. It can be purchased as a separate policy.

Time Frame and Waiting Periods for Loan Protection Insurance

If you do lose your job, become ill, or are involved in an accident, your monthly payment will be made for you for a specified amount of time. Some policies will make your payments for 12 months, others for 24 months. This is all predetermined before you sign your policy papers.

For most insurers, there is a waiting period before the payments will start. Some companies require 30 days of continuous unemployment before they pay. Other companies will require you to wait 60-90 days after an accident or illness before they pay. This is all part of the terms and conditions of the policy and will affect your premium payment depending on the coverage you want.

The Cost of Loan Protection Insurance

The cost of this very specific type of coverage will depend on many factors. Some of these factors are:

-Your age
-The state you live in
-What type of policy you purchase
-What type of coverage you would like
-Your credit history

When getting quotes for Loan Protection Insurance, you will typically be asked if you would like an age-related policy or a standard policy. Age related policies usually have a lower monthly premium the younger you are and a higher premium the older you are. A standard policy is the same no matter what your age.

Most policies will charge a certain amount of cents per $100 of the loan. For example, if your loan is for $8,000 and the insurance company charges .15 cents per $100, your monthly premium would be $12.00 per month. Other policies will take a certain percentage of your loan amount and determine your monthly premium that way. The higher the loan payment is the higher the premium.

Your credit history and credit score may also have a bearing on your monthly premium. If you have had trouble making loan payments in the past or you have a low credit score, you monthly premium may be higher.

Other more flexible policies will offer a straight cash benefit paid directly to the policy holder to be used for any purpose they choose if they should become unemployed. This type of mortgage protection insurance is becoming increasingly popular as a way to safeguard against the possibility of an unforeseen lay off.

Loan Insurance – All You Need to Know

Most people are required to take a loan of some sort or the other, at various points of time in their lives. Most of them are also plagued with the fear of being unable to pay their monthly loan repayments due to some financial crunch. But now they don’t have to feel scared because they can make use of the loan insurance concept that is slowly catching up all over the globe.

Loan insurance is a kind of a protection insurance that you can undertake to safeguard yourself against inability to make monthly loan repayments. It is a form of payment protection insurance that you can undertake to help cover you when you are unable to make your loan repayment due to some kind of an illness or an accident. In most cases, this insurance is taken up to cover home loans, personal loans or even car loans.

Advantages

In case of a personal problem or tragedy, you can be sure that your loan payments will be made, thanks to the insurance on loan coverage you have. People who suffer from sickness, loss of job, accident, death or any other kind of disability, leading to inability to pay the EMI’s on loans taken will benefit greatly from this kind of insurance. With your insurance taking care of your loan monthly repayment, you no longer have to be worried about the pressure being put on your family.

There is an option to undertake joint loan insurance by those who have taken up a joint loan application, giving you and your partner coverage at the same time. This scheme is very effective for partners as there is a constant reassurance that if either of the partner is taken ill or is involved in an accident or passes away, the repayments on the loan will be made on that person’s behalf.

Now the question arises on the types of loans that are covered under the loan insurance. In most cases, an insurance on loan is usually provided for borrowers of home loans. But certain banks are known to provide the insurance on auto loans as well as other personal loans.

Insurance Premium

Like any other kind of insurance, premiums are required to be paid in the case of this type of insurance as well. The amount of premium charged will differ from bank to bank. Very few banks even allow the insurance to be taken without the requirement of a premium to be paid.

The amounts of premiums that are charged on insurance for loans depend upon certain factors such as the age of the insurance holder, the amount of loan being insured, the medical record of the person taking the loan etc. The higher the person’s age, the higher will be the premium. Similarly, a higher loan amount being insured will lead to higher premiums being charged. Also, if the person’ medical records show a good status, a lower premium will be charged on the insurance. A serious ailment or a poor physical record will automatically rise up the premium amount.

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