The Different Ways to Pay for Closing Cost

Again the key is how long will you own the home or own the loan. If you are a first time home buyer I really recommend paying your closing cost in the rate. The odds are great you will not own the property long enough to matter too much. I am a big fan of owing less money.

Here is a table that I used to explain the different scenarios in the video.

Fell free to contact me if you would like to discuss this further.

Don’t forget you can search all homes listed by Realtors by clicking on the Search Homes Tab up top.

Below is an email I received from a lender this morning (he sends me two, so I figured I can use one of them). It is an update on some revisions the Federal Government has been making to help consumers understand loans better.

I personally have been using a letter called a “Lender Expectation Letter” If a buyer that I am working with tells me they have a lender they are working with, I say great. Take this letter and have them sign it. If they do not want to sign it then you should be concerned. The letter states that the lender will do their job and tell the truth. The fees on the Good Faith will match those at closing (the lender doesn’t control all cost like proration’s, taxes) at least the ones the lender has control over. It also states that if the buyer loses their earnest money because the lender did not perform, then the lender agrees so reimburse the buyer their money.

Also included is a link to the new Good Faith Estimate and the HUD-1 Settlement Statement which is the final reconciliation of all the money at closing.

Lender’s email

For the first time in over 30 years, the U.S. Department of Housing and Urban Development (HUD) has proposed reforms to the longstanding regulatory requirements of the Real Estate Settlement Procedures Act (RESPA).  

According to a press release issued November 12, HUD will require that lenders and mortgage brokers provide consumers with a new, easy-to-read Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs consumers pay when they buy or refinance a home.  

Last May, HUD extended the rule’s comment period to June 12 to allow for more opportunity for remarks on the Department’s proposed GFE form. HUD received approximately 12,000 comment letters following the proposal of its new RESPA rule. After considering those comments, the Department made considerable modifications to its original proposal. For example, HUD withdrew a proposed requirement that closing agents read and provide a ‘closing script’ to borrowers. Instead, there will be a new page on the HUD-1 Settlement Statement that allows consumers to easily compare their final loan terms and closing costs with those listed on their Good Faith Estimate. To facilitate comparison between the HUD-1 and the GFE, each designated line on the final HUD-1 will now include a reference to the relevant line from the GFE.  

Other changes included shortening the GFE form from four to three pages and adding an instructional section to help borrowers understand their loan offer.

Also, all settlement costs on the new GFE are broken down into three categories. The first category includes charges that are not allowed to change, such as the origination charge and transfer taxes. The second category consists of services selected or identified by the loan provider such as title services and lender’s title insurance. These costs can increase up to 10% at settlement. The final category is for services the borrower can shop for, such as homeowner’s insurance. These charges are not subject to limits on price increases.

The new GFE and revised HUD-1 go into effect January 1, 2010.

You Can Buy A House Now or You Can Buy One Later

There is speculation that interest rates will go up. The thinking is in order to pay for the bailout it will come from 10 Yr Treasury Bonds. Without getting into all the technicalities of how the Treasury Bonds work and yada, yada, yada…  Rates should go up.

When a person applies to get a home mortgage loan the end qualifying is based on a monthly payment. Let’s assume a person’s monthly income does not increase dramatically over the next year.

Here is what a $1,500 per month payment looks like if rates go up.

The difference is a pretty big.

 Republic Mortgage Insurance Company released in their notes yesterday, that they will not insure any loan with a greater than a 97% loan to value/ combined loan to value ratios (LTV/CLTV) regardless of any automated underwriting decisions.  

Also any declining markets they are going to add a 5% margin so they will only insure loans in declining markets that have a 92% LTV/CLTV.

Usually when one player makes an announcement like that the rest follow suit. So you can expect this to be the new standard across the board.

Essentially there are no more 100% loans. So if a buyer does not have three percent of their own money then the only other option is a Down Payment Assistant (DPA) Program and an FHA loan. This will not put pressure on the prices but it will have an affect on the bottom line to the seller.

The way the DPA programs work is the seller agrees to “Gift” 3% plus a small administrative fee to a Non-Profit organization and then the Non-Profit organization turns around and gifts the money to the buyer at closing. Some of these organizations are AmeriDream and Nehemiah Corporation.

Our current market condition has sellers willing to pay 2-3% concessions for the buyer’s loan closing cost. Now combine that with the DPA cost, prices won’t really go down but it will come from the seller’s bottom line.  This could play out pretty good for the buyer that has their own money and will give some leverage to sellers in certain situations.

It seems like every time something happens in the lending world it gives another reason to use FHA.

FHA Loan limits are up to $729,750 in Salt Lake County which is just over 90% of the homes in Salt Lake County Listings of the WFR MLS.