January 25th, 2017 5:12 AM by Jackie A. Graves, President
Here are the items in your mortgage that you can
it's your first home loan or you're refinancing an existing one, new mortgage
are costly. The average homeowner pays 3% to 6% of his outstanding
principal for a new loan. But you do have options when you're shopping for a
mortgage. Here's how to get some leverage and use it.
Start mortgage shopping
mortgage broker can be a valuable asset, especially for anyone who has credit
problems. And even if your credit is good, using a broker can simplify cost
comparisons since you're shopping the brokers' fee, not lenders' settlement
costs. If you go this route, hire an up-front mortgage broker who discloses
fees in writing at the outset.
non-brokered deals, use competing bids to negotiate. And if you're refinancing,
don't automatically dismiss your current lender: It's more efficient (and
cheaper) for it to hang onto your business. If the bank servicing your loan
isn't your original lender, even better. It paid to acquire your mortgage; it
has more incentive to keep it.
detailed cost-benefit analysis is critical. There are a number of factors
you'll have to consider, but don't be daunted -- given the size and importance
of this transaction, your homework will pay off.
No-cost loans? Not so fast
likely run across lenders offering "no-cost" mortgages. That's not
the same as "free." It just means expenses are baked into the
transaction -- either via a higher interest rate or rolled into the amount of
the loan. If it's the latter, it could affect your ability to deduct the costs
from your taxes, plus you'll pay interest on the added amount for the life of
no-cost mortgage or refinance is best for borrowers who will hold the mortgage
for no more than three or four years, says Jack Guttentag of mtgprofessor.com.
If you plan to sell or refinance in that time, be sure to include the costs in
How to cut mortgage costs
to a 2007 Bankrate.com survey, the average homeowner pays $2,736 in closing
costs (not including taxes, escrow, or other governmental fees) on a $200,000
real negotiations begin once you get a good-faith estimate (GFE) from the
lender. The key word is "estimate": You won't see the actual costs
until you get the HUD-1 three to five days before closing.
though they're boring, make sure you familiarize yourself with these documents
well before you see the final drafts. The earlier you identify any fee-padding
or bait-and-switch techniques, the more leverage you'll have to negotiate or
walk away from the deal.
best shot at cutting costs is not with the third-party fees (those paid to
title companies, lawyers, and county tax offices), but with the lender's line
items (points and application, administration, and processing fees). And unless
you see something really egregious (like a $200 credit check fee), concentrate
on the big-ticket items.
with the yield spread premium (YSP) -- the rebate paid to the lender or broker
-- which is typically 1% to 3% of the loan value. It can be called a number of
things on the GFE, such as "loan origination," or "lender"
or "broker" fee. (The average outlay for "lender fees" is
$1,114.) Shoot for 0.5% to 1% if you're a good credit risk. Negotiating from 3%
to 1% on a $200,000 loan puts $400 in your pocket.
next biggest line item is title search and insurance (average $707). If your
original loan is less than two years old, ask for the "reissue rate"
-- which should be 50% to 70% less than the original policy (at least $353 in
savings). Even if you bought five years ago, ask for a discount.
items like the application fee (average $425) are also negotiable because they
are usually there to cover the lender's costs if you back out. And if you
really want to get into the weeds, look into "document prep" ($187),
"underwriting" ($247), and "processing" ($371) fees.
Motley Fool - To view the original article click here