Mortgage Closing Costs - The Importance of Estimating Closing Costs
Estimating mortgage closing costs in New Jersey should not be a difficult task for most, but for some loan officers, they can be way off the mark. I know this because I get about three e-mails a month from borrowers that had a bad experience. Now I am seeing a trend that is scaring me, and the consumer needs to be aware.
When first shopping for a mortgage in New Jersey, usually the first question that gets asked by the borrower is, “what is your interest rate.” Followed by, “what are your closing costs.”
In my opinion, both of these questions can be very dangerous if the person answering them doesn’t take the time to explain in depth. Any loan officer can give a rate, especially to entice that person, to get them in the door. I have already talked about interest rates and the best methods to shop for interest rates : Today’s interest rate - Please don’t hesitate to read this post and the others mentioned at the end. What I want to talk about today is the importance of understanding the term “closing costs.”
Understanding Closings Costs – I find that there are 4 major sections
Lender Closing Fees – This is a specific section to where all lender fees are listed. Best way to compare apples to apples, because these fees should be set in stone from day one and not change. All of the other fees outside of the lender fees can change, because they are purely just estimates until you are closer to your settlement date or the day of.
Prepaid Costs - This is the section to where your taxes, homeowners insurance, possibly mortgage insurance, and daily interest is listed. My biggest issue is that I have seen many loan officers mislead when it comes to the number of months escrowed for your property taxes. Each state is different and all don’t require the same number of months. Example : State of New Jersey taxes are paid every quarter, which would be 3 months. I always escrow 5 months on paper, because this could be the worst case, depending on when the last property taxes were paid. This could be a huge difference in your bottom line number, if you just shop total costs or cash-to-borrower.
3rd party charges : to include title insurance (and all title fees), recording fees, survey fee (if applicable), transfer fees (if applicable per state) – Title insurance is regulated, but some companies sometimes charge more than they should, because of kick backs to the lender.
Down Payment – I list this, because sometimes this is not discussed properly upfront or listed in the total cash required. The down payment should be listed in your total cash required or cash from borrower. Yes, it’s not considered closing costs, but can be confused when talking about total costs required.
Conclusion : Keep in mind, by law, a lender has 3 business days to give a good faith estimate in New Jersey from the time of application. But a real application doesn’t take place until 7 trigger points have been met. What should you receive when shopping for a mortgage or when speaking to a loan officer that you trust? The new term for most is ‘Itemized Fee Worksheet’, which is a duplicate of the ‘old’ good faith estimate. But just because you get this upfront, doesn’t mean that it’s ‘gold’. And one needs to review and compare each section, not just the total number at the bottom. Understand why one might be more than the other. And don’t shop by using the APR. There are a few reasons why and I don’t suggest shopping by APR. Please read : Understanding APR
Lastly, all of what I talked about is just not for New Jersey, but for every borrower in every state.