During a recent interview with Jason Jenkins from First Place Financial in Grand Rapids, Michigan I was reminded of the gaping differences in lender costs. Jason really re-enforced the fact that lenders are not all created equal, nor are closing costs or pre paid fees.
When you are securing financing to purchase a home, not only will you want to consider the type of service you will be getting from your lender, you will also want to get very specific about closing and pre paid costs.
Many people think that closing and pre paid costs will be covered by the sellers without realizing that this is almost always capped to a percentage of the purchase price. This cap can vary depending on the loan type.
For example, FHA currently allows the seller to pay up to 6% of the loan value in closing costs. However, this can change at any time and there have been regular discussions that this will reduce to 3% in the future.
Allowing even less seller paid expenses are conventional mortgages. These loans only allow sellers to pay 3% of the loan value in closing costs.
Crunching these numbers, one will quickly come to realize that if buying a 50,000 home, 6% of seller paid closing costs may not cover all of the costs, much less at 3% with a conventional loan.
To help buyers get a general idea of costs involved with closing their mortgage we have included a basic estimate loan cost checklist below this post. Again, this is just an estimate; costs vary by time, lender, and loan type.
In addition to asking your lender about the items listed below, be sure to ask about any additional fees. When you have found a home you would like to put an offer on, a Good Faith estimate is in order to make sure you are able to cover all your cost for that particular home.
Jason’s Estimated Closing Cost Check List:
$350 Appraisal- for evaluation of value
$650 Processing/underwriting Fee- Charge for bank to process loan approval
$35 Credit Report- Run to determine credit worthiness for approval
$200 Title Company Closing Fee- Charged by title company to close loan
$580 Title insurance- This fee varies based on loan amount and insures against liens
$11 Flood Certification to verify home not in flood zone
$59 Recording fee- Records mortgage with municipality in which home is purchased
$1885 Total
Not included is Broker Fee and home inspections. Home inspections are the client's option while Broker fees are normally mandatory. To help our clients save money at closing, The Gordon Group does not charge a Broker Fee even though this does come out of the commission we earn on the sale of the home.
These costs are not all the same; when interviewing Real Estate agents ask what they charge.
"Pre-paids" are based on the annual property taxes for the home and the homeowners insurance secured by the borrower. We currently collect the following for escrow account set up
9 Months of the Summer Bill
3 Months of the Winter Bill
2 Months of the Homeowners insurance.
Optional pre-paids
Home inspections: Price varies per inspector and depends on what you decide to have inspected. Generally inspections start at $250.00. Although an inspection is optional, I highly recommend having this done.
Most home inspectors will want to be paid at time of service.
Home Warranty - Price varies depending on the one you select - these usually start at about 395.00
**** Reminder this is just closing cost and pre-paids and if not negotiated by your Realtor to be paid for by seller – these charges are addition to the down payment for the loan.
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