Financing Home Improvement- Which Ways are Best?

Financing Home Improvement-Which Ways are Best- 150x150Nowadays, financing a home improvement project can be done in several ways, all of which have their advantages and disadvantages. Which one is the best for you usually depends on several factors, such as the project’s cost, how much time the project will take, how much equity you have in your home and many more. Deciding which type of financing is best is entirely up to you. This article will describe several ways in which you can do it and give insight into which ways are often the best for most situations.

First of all, when starting an improvement project, the first thing that you need to do is create a realistic budget that you should strictly follow. Everything that you are planning for your home improvement projects should be stuck to once the budget is set. Changing your plans half way through can get very expensive and you may find yourself unable to finish your project. Also, when setting a budget, always overestimate costs. In very rare cases, you can end up having to spend less than you planned, but most of the time you will actually have to spend more. Having a budget will help you find out exactly how much money you need and ensure that the project is finished on time and without any major issues.

Whether you are building a garage or a pool, installing new appliances, or simply remodeling a kitchen or a bathroom, unless you have a large amount of money saved up, you are going to need financing. Find out what your budget is and how long the improvement project will take before looking at financing options. Here are the most commonly used methods of financing a home improvement project.

Cash

The most obvious choice is also the cheapest choice. Taking out a loan means that you will be paying interest and fees, making your home improvement project much more expensive. Whether you have it saved up, borrowed it from a friend or family member, cash will always be the cheapest way to finance a remodeling project. Also, because you are not using your home as collateral, you also avoid the risk of losing your home to foreclosure.

Credit Cards

With credit cards you avoid paying closing costs, as you would if you took out a loan, but interest rates will be much higher. Home improvement projects that only cost a few thousands of dollars are easy to finance with one or more credit cards, but you should only use this option when you are able to repay the borrowed money in a few months.

Personal Loans

Unlike mortgage loans, personal loans that are unsecured do not use your home as collateral. This means that, if you fail to repay what you have borrowed, your home won’t be at risk for foreclosure. Banks only offer unsecured personal loans for small amounts of money and the qualification guidelines are strict. Other lenders offer payday loans, which have very high interest rates.

Home Equity Loan

With a home equity loan you use your house as collateral, just like you would on a primary mortgage. The interest rate on a home equity loan is fixed and also tax deductible. Another downside besides having to pay an interest is that home equity loans require you to pay closing costs. Failing to repay the money, you risk losing your home to foreclosure.

Finding the perfect solution when it comes to financing a home improvement project can be difficult. Your best bet is to carefully assess your financial situation, determine how much money you have to spend, and take it from there. The best option would be finding cash for the project, but, if that’s not possible, there are a number of other ways in which you can finance your home improvement project.

A Clever Guide to Mortgage Loans with No Documentation Needed

A Clever Guide to Mortgage Loans with No Documentation Needed- 150x150Similar to low documentation loans, a no documentation loan is a type of mortgage loan that requires very few documents in order for the loan to be granted. You essentially just need to sign an affordability statement which states that you are aware of how much you will have to pay back and that you can afford to pay back the loan. You won’t have to provide proof of income when taking out a mortgage loan with no documentation needed.

Unlike conventional mortgage loans which require a 10 to 20 percent down payment, no documentation mortgages require a 5 to 30 percent down payment, depending on what your credit score is. Home buyers with less than perfect credit score also have the option of taking out a no documentation mortgage through the Federal Housing administration (FHA), which insures mortgage loans against default.

Because no documentation loans don’t take long to be approved since there is little that your lender has to verify, and since they require so little paperwork to prove your income, these are typically mortgage loans for self-employed or for those with bad credit history.

How Can You Qualify for a No Documentation Mortgage?

Many people believe that someone who is looking for a no documentation loan must have something to hide, but that is rarely the case. This type of loan is preferred by people who are self-employed and can’t provide the proof of income for lender requirements in order to give out a conventional loan, people who are unemployed and can’t meet the requirements for a traditional mortgage loan, and people with a poor debt to income ration, but who can afford to pay back a mortgage loan without difficulty. It is true that someone who makes money from illegal activities can take advantage of this type of loan, but it is not why this loan was designed. It is estimated that approximately 20 percent of all borrowers have chosen this type of loan instead of a conventional one.

Even though this loan is described as a no documentation loan, there are still a few documents that you will have to provide for your lender. The lender will still have to see a credit report in order to determine how big of a default risk you are. Also, the property that you wish to buy will need a home appraisal so that your lender can determine if the money that you are borrowing actually represents the value of the home.

You could obtain a mortgage loan even without those documents, but the loan will probably be much more expensive. You should also keep in mind that this type of loan is only valid for the purchase of a single family home, town house, or apartment. Commercial property and manufactured homes can’t be purchased with a no documentation loan.

Another thing to remember about no documentation loans is that they typically require a higher down payment than conventional loans, and also come with higher interest rates and closing costs. Your credit also has to be in good standing, or the loan will be much more expensive and your mortgage application can also be denied.

Mortgage loans that have no documentation requirements are a good alternative for home buyers who don’t qualify for conventional loans, or for those who wish to take out a mortgage loan without providing too much info about their income. Before deciding to go with a no documentation mortgage loan, you should do a little research and find out if you can meet the requirements of a conventional loan, which can be cheaper and provide greater benefits.

Refinancing Your Home: The Complete Process

Refinancing Your Home-The Complete Process- 150x150Refinancing your home at the right time can bring you great financial benefits, but the process can be a little intimidating for those who are refinancing for the first time, and even for those who have done it before in the past. Changing your mortgage loan to a different loan with different terms can get a bit confusing, and you might be afraid not to make any mistakes and end up doing the exact opposite of saving money.

There are consultants who can guide you through the refinancing process, and it’s not a bad idea to use them, but it’s important that you understand how refinancing works, from deciding to refinance to actually taking out the new mortgage loan. Understanding the refinancing process will help you avoid making simple, but expensive, mistakes, which can end up ruining your plans.

Deciding to Refinance

Home owners generally refinance when the interest rates are lower than they were when they took out their mortgage loan, but interest rates should not be the only deciding factors when you consider refinancing. First of all, the advertised interest rates are usually reserved for those who meet some very strict requirements, like having a perfect credit score. Anything less than a perfect credit score and you will find that the interest rate that you’ll be required to pay on your new loan is not that attractive anymore. Secondly, you should not be blinded by the low interest rates that lenders are willing to give you. The closing costs of refinancing can be very high, and might make the overall value of your new mortgage loan even greater than the value of your current loan.

Getting Prepared to Refinance

If you have decided that refinancing is the right step for you, and you will be saving money by doing it, then it is time to get prepared. Like most mortgage loans, refinancing will require a good credit score and a significant number of documents. Before talking to a lender, you should check your credit score, and make sure it’s in good shape, without any inaccuracies. You are entitled to one free credit report check per year, and you should report any erroneous information to the credit bureau. Also, having some of the paperwork ready before applying for a refinance will save you a lot of running around, and it will make the whole process go faster and smoother.

Choosing the Right Refinance Loan

There’s no perfect mortgage loan that will benefit everyone. Depending on your financial situation and many other factors, you should closely look at all loans that will be made available to you and decide once you find one that meets all your requirements. For example, you may want a lower monthly payment, in which case you should look at 30-year fixed-rate loans. Alternatively, you may want to pay off your mortgage sooner, in which case you should look at 15-year mortgages.

Applying for the New Mortgage Loan

Like we’ve mentioned earlier, preparing certain documents, such as personal tax returns, bank statements, pay stubs, and others, will make the refinance application process go by very quickly and, in some cases, you can even apply over the phone. The quicker you submit the required information, the faster will your new mortgage loan be approved.

Appraisal and Approval

After submitting your application, you will normally have to get your home appraised by a home appraiser. These appraisals usually cost a few hundred dollars and are paid by the borrower. The home appraisal is required in order for the lender to find out how much your home is worth and if you have enough equity in your home to support the new mortgage loan. All your paperwork, including the appraisal, will then be reviewed by the lender. If the lender comes to the conclusion that you are able to repay the new loan, your refinancing loan will be approved.

Locking in the Interest Rate

Once your new mortgage loan is approved, you will have the choice of locking in the interest rate or letting it float until closing. By locking in your interest rate, you are protected from an increase in interest rates before you close on the loan. If you don’t lock the interest rate, there is a chance that the rate on your new loan might increase, but there’s also a chance that it might decrease by closing time.

Signing the Loan Documents and Closing

At closing, you will be required to sign all of the loan documents. You should carefully review each document before signing, making sure they contain everything that was agreed upon. When closing, you will also be required to pay various closing fees, which can be pretty costly. However, some of these closing costs can be reduced at your request, or even waived, if you have a good relationship with your lender.

Refinancing is a pretty straight-forward process once you understand it, but you should still pay attention to the details. Refinancing can turn into a costly nightmare if you don’t carefully take all of the aspects into consideration. Doing your homework before refinancing will ensure that the whole process goes by smoothly and making your mortgage payments will be much easier.

What is the True Cost of Refinancing? The Truth is Revealed Here!

What is the True Cost of Refinancing- The Truth is Revealed Here- 150x150Refinancing your home involves getting a new mortgage loan, and it’s a practice that can be very beneficial and save you a nice amount of money, or it can prove to be very expensive and cost you a lot of money. The main goal of refinancing is to save money on your mortgage by replacing your original mortgage loan with one that features a lower interest rate (Read: Major Motivations to Refinance a Mortgage).

Usually, refinancing costs the average home owner between 3 and 6 percent of the home loan’s value. For example, if you are refinancing a $200,000 home, refinancing will cost you between $6,000 and $12,000. Paying such a high price for refinancing should make you wonder if you should do it and get a new loan with a lower interest rate, or keep your old loan with the higher interest rate. The only way to find out if refinancing is worth the hassle and cost is by putting everything on paper and calculating if the lower interest rate of the new loan will bring greater savings than you will be spending on closing costs.

Closing Costs

All the fees associated with refinancing should be included in the Good Faith Estimate. This document will reveal how much your lender is charging you for each item. If you do your homework, you will be able to tell which fees are necessary and which ones are unnecessary and can be lowered or even waived by your lender.

Costs such as the origination fee or the lender fee are paid directly to the lender and can be easily negotiated, and sometimes even waived. The lending officer normally works on commission, and will prefer to lower these fees, than to lose a customer and get no commission at all.

When doing mortgage refinancing, you can purchase “points”, which will lower the interest rate on your mortgage. They are essentially a form of prepaid interest and each point is worth 1 percent of the loan amount. You should take into consideration the amount of time that you will be spending in the home and how long it takes you to break even on the cost when purchasing points.

Determining the True Cost of Refinancing

Lowering your interest is very attractive and the main reason why people refinance, but it’s not the only factor you should look at when deciding whether to refinance or not. The new lower interest rate should play a big part in your decision, but what you should really be looking at is whether the savings that you get from refinancing your mortgage are bigger than the cost of refinancing. Many times, borrowers will be blinded by the lower interest rates, and refinance without realizing that the high cost of refinancing will actually cause them to lose money.

In order to find out how long it will take you to start saving money after refinancing your mortgage, you should subtract your new monthly payment from your old monthly payment, and divide the cost of refinancing by the monthly savings. The number that will result from this will be the number of months it will take to break even. Refinancing if you plan on living in a home for longer than it will take you to break even is a great choice. Here are a few tips to help you understand how much will refinancing cost you and decide if it will save you money:

  • Find out what your new interest rate will be. Many times, lenders will only advertise the lowest interest rate that they can give, but that doesn’t mean you will qualify for it. Depending on your credit score and how many points you purchase, you can end up paying a much higher interest rate, which will make refinancing look less appealing than it did when it first crossed your mind to refinance.
  • Find out how much refinancing will cost you. You will, most likely, have to pay several good thousands in closing costs when refinancing, so finding out exactly how much this will cost you is a great way of determining if refinancing is a good choice. Mortgage application, origination, document preparation, appraisal, title and many other fees can add up and cost you an arm and a leg.
  • Decide if refinancing is worth the hassle. Besides the high closing cost, refinancing is also a time consuming process. Before talking to a lender, you should consult an online mortgage refinancing calculator. Online calculators won’t be 100 percent precise, but you should make sure that you provide the most accurate information when calculating your costs and savings.

Refinancing is a costly process, but you shouldn’t let that scare you. You should also not let the low interest rates advertised by

Do You Live in a Rural Area? If Yes, a USDA Home Loan is for You!

Do You Live in a Rural Area-If Yes a USDA Home Loan is for You- 150x150In an effort to increase home ownership in rural areas, the United States Department of Agriculture started offering USDA backed loans back in 1991. By using a USDA loan, you can purchase, refinance, repair, or relocate a home, as long as the home is located in a rural area. This type of loan is designed to help only certain individuals, but it is very similar to other government backed mortgage loans, such as FHA (Federal Housing Administration) and VA (Department of Veterans Affairs) loans.

This type of loan was initially designed to help people living in rural areas become home owners, but it can also be used to finance multiple types of properties and even businesses. For those who qualify, the USDA offers 100 percent financing with low interest rates, and loan terms from 30 to 38 years.

Advantages to Choosing a USDA Home Loan

USDA home loans are designed to help people, so they will have more advantages when compared to other types of mortgage loans. Here are the most important benefits, which should help you decide if a USDA home loan is the right choice for you:

  • The biggest benefit of the USDA home loan is that you receive 100 percent financing, which means that you won’t have to make a down payment. Down payments on conventional loans are usually 20 percent of the loan value, and one of the main reasons some people can’t afford to buy a home through a conventional mortgage loan. The only other loan that offers 100 percent financing is the VA loan, which is designed for current military members or veterans.
  • Another benefit is the possibility of financing the closing costs into the loan. This is also a large advantage, because closing costs can sometimes be fairly high, and very hard to come up with, especially when moving into a new home. Most conventional loans will require you to pay the closing costs before being granted the loan, which makes it harder to qualify for those who can’t afford to pay these costs.
  • Buying a home with less than perfect credit score will attract higher interest rates, or even make it impossible for you to qualify for a mortgage loan. With the USDA loan, the credit requirements are less strict, giving people, who otherwise couldn’t qualify for a mortgage loan, the possibility of becoming home owners.
  • USDA home loans also come with lower interest rates. This means that not only you will be paying less monthly, but the overall value of your loan will be lower than if you were getting a conventional loan. Even if interest rates on conventional loans are lower at the moment, you will still get a better deal on your rate by choosing a USDA home loan.

Applying for a USDA Home Loan

Whether you are purchasing a home, refinancing, improving your home, or just taking advantage of the cheap land prices, doing it through a USDA home loan will bring you great benefits. However, to qualify for this type of loan, you need to meet a few criteria and be aware of the process. Here are the steps to applying for a USDA home loan:

  • Select one of the two loan options that the United States Department of Agriculture offers. If your income is at or under 115 percent of the median income in the area, then you could qualify for the Guaranteed Housing Loan. If your income is very low or moderate, usually below 50 percent of the median income, you will be able to apply for a Direct Loan, or a Section 502 Loan. The home that you are planning to buy with a USDA home loan must be your primary residence and located in a rural area.
  • Maintain your credit score at a decent level. You won’t need to have a perfect credit score in order to be granted a USDA home loan, but you will encounter problems if your credit score is very low. Foreclosure or bankruptcy on your credit report can even make it impossible for you to qualify for a USDA home loan. Also keep a low debt-to-income ratio or your lender will consider you a bigger default risk and refuse to give you the loan.
  • Make sure that the home that you consider buying is located in an eligible area. Because they are designed to increase home ownership in rural areas, USDA home loans will only be approved for those who purchase homes in certain areas.

Applying for a USDA home loan is no different than applying for a conventional mortgage loan. The big difference is that this type of loan comes with greater advantages, the biggest one being the cost. The downside is that you can only use the USDA home loan to purchase a home in a rural area but, depending on each individual’s plans and situation, this might not be a downside at all.

The Reality of Being a Home Owner: It Costs How Much?!

The Reality of Being a Home Owner- It Costs How Much-150x150Many people who pay hundreds or even thousands of dollars each month on their rental home dream of becoming home owners. Using the rental money to pay for a mortgage is a much better alternative. In some cases, your monthly mortgage payments will be the same as your rental payment, but many home buyers fail to understand that there are many other costs associated with home ownership besides the mortgage payment. In reality, owning a home will usually cost more than renting, but it also has its advantages.

Especially when prices and interest rates are low, most people tend to overlook the majority of costs associated with owning a home, only looking at the monthly payment. The temptation to become a home owner can be very strong, especially for those who have been living in a rental for a while and have gotten married or are ready to start a family with children. In this article, we will take a look at how much it actually costs to be a home owner and which factors will influence these costs.

One Time Costs

Unlike renting, buying a home can have a very high initial cost. Unless you qualify for a no down payment mortgage loan, here are the costs associated with buying a home:

  • The down payment. Most conventional mortgage loans require a 20 percent down payment, or you will be forced to purchase private mortgage insurance, which can be very expensive. The higher the down payment, the lower your interest rate and loan value will be, meaning that your monthly payment will also be lower.
  • Closing costs. Closing costs can be as high as a few thousand dollars, and must never be overlooked when applying for a mortgage loan. Some lenders allow you to finance the closing costs into the loan, but that will make you monthly payments larger and require you to pay interest for the closing costs.

Monthly and Annual Costs

The largest cost of owning a home will be your monthly mortgage payment, which will be higher or lower depending on several factors. Besides the obvious monthly mortgage payment, there are several other costs that you should be aware of when trying to find out how much home ownership will cost you.

  • The Homeowners Association (HOA) fee. Depending on what type of home you purchase, you might have to pay a monthly HOA fee. This fee generally covers insurance, maintenance and garbage services, but can also cover higher-end amenities, such as pools or fitness centers.
  • Property taxes. Property taxes are based on how much your property is worth and its location, and are generally paid annually. Property taxes are paid to the municipality or town in which you reside, and are due even after you have paid off your mortgage.
  • Homeowner’s insurance. This type of insurance is also based on the location of your home, its size and value. Other factors which may have an influence on how much you will be paying in homeowner’s insurance are your home’s age and if it’s located in an area where floods or hurricanes are common.
  • Utilities. Gas, water, heating, electricity are some of the utilities that may have been included in your rental payment. When owning a home, you will have to pay all utilities each month, and that can prove to be a burden, depending mostly on your home’s size. For example, heating a small apartment can be very cheap compared to heating a two-story house.
  • Maintenance. Keeping your property in good shape will also be your job, as opposed to a rental, where this is usually the landlord’s job. Trimming the hedges and cleaning gutters can be time consuming, or expensive, if you hire someone to do it for you.
  • Repairs. When you were renting and had a problem, such as a leaky faucet or a broken appliance, you would just call the landlord and had it repaired or replaced. When owning a home, you will have to do these repairs on your own, or hire someone and suffer the cost. Damages to your roof or electrical and plumbing systems can be very costly, especially if they are not resolved in time.

As you can see in this article, owning a home won’t necessarily be a better choice over renting. There are more costs and risks associated with home ownership vs. renting, but the benefits of owning your own home certainly exceed the downsides. It is up to you to research what owning your own home involves, how much it will cost, and decide if it’s a step that you can take without suffering financially and ending up regretting your decision.

Do You Make These Mistakes? Don’t Kill Your Mortgage Refinance!

Do You Make These Mistakes- Don't Kill Your Mortgage Refinance-150x150Making lower payments on your mortgage is a great way to save money and make your life easier. The most common way in which you can reduce your monthly mortgage payment is by refinancing. This can also be the most beneficial way, which can save you a significant amount of money. But going from saving money to losing money is really easy when it comes to refinancing.

Refinancing might seem like a great idea at first glance, but it is not for everyone. There are several factors that have an influence on whether refinancing is good or bad for your situation. When refinancing, many home owners often make mistakes that, even if they won’t create problems in the beginning, will end up costing them in the long run. Refinancing is more complicated than it was years ago- the requirements are stricter, more paperwork is needed- so it’s easy for a borrower to make a mistake.

Here are the most common mistakes that borrowers make when refinancing, to help you avoid making them when you decide to refinance.

Convincing Yourself That Your Home is Worth More Than It Is

Being unrealistic about the value of your home is a sure way of ruining a refinance. Many areas have seen a decline in home prices, so your home’s price has probably fallen too. Most refinances today are denied because the home is appraised too low, so the lender won’t give out loans that are larger than the appraised value.

Not Shopping Around

You might have a great relationship with your current lender, and he might give you a special deal on your refinance, but it never hurts to shop around for an even better rate. Lenders can also reduce or even waive certain closing costs, which will also influence how much you will be spending on refinancing. Even a small difference in interest rate can mean a lot of money over time, so it’s important to look around, see which lender can offer you the best deal.

Not Taking Closing Costs into Consideration

One of the biggest reasons many home owners choose not to refinance are the high closing costs. The closing costs are one of the main factors that should be taken into account when deciding whether to refinance or not. Interest rates offered by most lenders will probably look very attractive, but you can end up losing money if you don’t take closing fees into account.

Letting Your Credit Score Decrease

Even if you find a very attractive refinancing rate and a lender who is willing to waive some of the closing costs, refinancing with a low credit score will most likely result in a waste of time. Not having a good credit score will attract high interest rate, or even the lender’s refusal to give you a new loan.

Creating New Debt During the Refinance

New credit cards or loans can seriously hurt your chances of being able to refinance. Additionally, you’ll have to provide even more documentation to justify the new debt. It’s best to hold off acquiring new debt until the refinancing process is over and your new loan is granted. It’s always best to keep new debt low, even after refinancing, and talk to your lender about what the implications are.

Refinancing Multiple Times

Refinancing repeatedly in a short period of time will not save you money. Each time you refinance, not only do you have to pay some hefty closing costs, but you are also resetting your mortgage, meaning that over time you will pay significantly more in interest. You can also end up having to still make mortgage payments during your retirement years.

Your decision to refinance should not be affected only by the low interest rates. Always take into consideration the closing costs when trying to figure out if refinancing is the right step for you. Not paying attention to all of the details can become very expensive with refinancing. All mistakes can be avoided by doing a little research, making refinancing an easier process, which will truly save you some money.

10% Down Payments are Back!

10 Percent Down Payments are Back-150x150Becoming a home owner is many people’s dream, and at one point in their life, it will probably become reality. But there are several factors that need to be considered when buying a home, most of them related to how much you will be spending on your loan. Finding a home is the easy part, and you probably won’t encounter too many issues there. But making sure that you are not overpaying is a little harder, and will require some research.

Of course, your financial situation may require you to make some compromises, such as having lower monthly payments at the cost of paying more overall on your mortgage loan. Another aspect of your loan in which you can compromise is the size of your down payment. For years, the majority of lenders have required borrowers to make a 20 percent down payment, but it looks like 10 percent down payments are back, and they are an attractive alternative to many home buyers.

Advantages of Making a 10% Down Payment

Depending on how much the home that you are buying is worth, a regular 20 percent down payment can mean a large amount of money, which many home buyers are not able to afford. For some, it might take years to come up with the 20 percent down payment, so the 10 percent alternative is a good option. Besides the down payment, home buyers shouldn’t forget about other costs associated with taking out a mortgage loan, such as closing costs and insurance. Closing costs can be very high, making the 10 percent down payment even more attractive, compared with the hefty 20 percent down payment.

Another advantage of not having to save for a long time in order to come up with the 10 percent down payment is that, when saving money for a few years, there is always a chance that home prices may rise, making it impossible for you to buy a home with the amount of money that you have saved up. You should also take inflation into account- 20 percent of the cost of the home right now will, most likely, not represent 20 percent of the price of a home a few years from now.

Even if you can afford the 20 percent down payment, you can choose to only put down 10 percent and use the other 10 to finance repairs or improvements to your new home. That extra 10 percent can also be used for investing in stocks or mutual funds, but this is only recommended for those who have experience in these types of home investments.

Disadvantages of Making a 10% Down Payment

One large disadvantage to making a 10 percent down payment is that qualifying for a lower down payment is fairly difficult. Lenders require your debt to be less than 45 percent of your income, and your credit score to be above 700. Many of these restrictions apply to 20 percent down payments, as well, so qualifying for a 10 percent down payment won’t be too difficult if your only problem was coming up with the 20 percent required by all lenders until now.

Another disadvantage is that, if home prices go down in the future, you could end up with a home that is worth less than what is owed on the mortgage. If this happens, you may not be able to sell your home, which may lead to other serious issues. 10 percent down payments can also be problematic if you have little equity in your home and decide to sell. Your loan value plus selling costs can be higher than the sale price, resulting in you losing money.

10 percent down payments are back, and that is good news for home buyers with good financial situations, but who can’t or choose not to make a 20 percent down payment. But before deciding how much of a down payment to make on your home, you should calculate how much money you would save or lose with each option. If the down payment size is the only thing standing between you and home ownership, then go for it, but you shouldn’t choose to make a 10 percent down payment just because you can, without weighing in on both the advantages and disadvantages.

Hidden Dangers in Mortgage Fees: Don’t Pay Junk Fees!

Hidden Dangers in Mortgage Fees- Don’t Pay Junk Fees- 150x150Becoming a home owner is something that most people aspire to, and it involves probably the largest investment that you will make over the course of your lifetime. After saving for years to be able to make a down payment, you have finally found the perfect home and the closing date is approaching. You have probably been advised by your real estate agent to set aside some money for the closing costs, but the long list of fees that you will be required to pay at closing will most likely still come as a surprise.

What are Closing Costs?

Closing costs are the charges that the home buyer will have to pay at the closing of the mortgage loan, besides the purchase price of the home. These costs can be recurring, meaning that you will have to pay them regularly, or nonrecurring, which are fees paid only once at closing.

Recurring costs, that will have to be paid not only at closing but also each month after, are expenses such as insurance, taxes, and private mortgage insurance, in case your down payment is less than 20 percent. These costs must be paid in advance by using an escrow service, which allows you to deposit the money into an account each month, which will be later used to pay your recurring costs.

Nonrecurring costs are paid at closing and never again. These expenses include the application fee, points on your mortgage, appraisal and origination fees and many others, depending on your lender.

Which Fees are Junk?

It is very important to differentiate between fees, and understand what every one of them represents. The majority of fees that you will be charged at closing are legitimate, and you will have no choice but to pay them, but there are plenty of fees that can be minimized or even waived. Knowing which costs are legitimate and which are junk can save you a nice amount of money at closing. Here are some of the fees that you will be charged and what you should know about each one of them:

  • Administration fee. This fee is charged by the lender in order to cover the cost of closing the loan, and it is a junk fee. You should try to have this fee waived, or at least lowered.
  • Application fee. This fee is charged solely for fill out your loan application, and it should be as low as possible, or even waived.
  • Appraisal fee. This is usually a necessary fee, as the lender has to know how much the home is worth, in order to give out a loan. But you should still try to negotiate a lower cost on the appraisal.
  • Credit report. You have the right to a free credit report per year, so you shouldn’t have to pay this fee. If you can’t take advantage of your free credit report, you should at least try to minimize it, because the lender will most likely overcharge you for it.
  • Document preparation fee. It is your lender’s job to prepare all the documents, and you’re paying them enough in other fees and interest, so you shouldn’t be charged for something twice.
  • Flood check fee. Your lender is required by federal law to obtain a certification that shows if the property is in a flood hazard area.
  • Lender fee. This cost includes several fees, such as attorney and courier fees, which you are required to pay, but you should also ask for a detailed breakdown to make sure that you aren’t charged excessively for any of these lender fees.
  • Origination and processing fees. These fees are associated with starting an account with the lender and processing your loan. Once again, you should try to minimize these fees.
  • Title fees. This cost includes fees like the escrow fee, messenger fees and the cost associated with recording the title on the deed. Carefully check a breakdown of these fees in order to find out if you are overpaying.
  • Wire transfer fee. This fee is charged in order to cover the cost of transferring money through a wire transfer. Check the other fees that you are paying to find out if you are not being charged twice for the same fee.

Protecting yourself from being charged junk fees or being overcharged on legitimate fees is a great way of making sure that you don’t end up paying significantly more that you should when the day of your loan closing comes.

Even after doing your research and familiarizing yourself with which fees are legitimate and which are junk, continue to carefully analyze every cost to protect yourself from being charged twice for the same fee. Also, remember that most fees are negotiable, so a little haggling never hurts. Buying a home is a demanding process, and the only way in which you can make sure that you won’t be overcharged and end up having to spend more than you have anticipated is to do your homework beforehand and be prepared on the day of the closing.

Tackle the Loan Closing Process with this Preparation Guide

Tackle the Loan Closing Process with this Preparation Guide-150x150The last step needed in order to become a home owner and secure a mortgage is the closing. The closing involves signing a number of documents and paying a few fees as well. This step can prove challenging and overwhelming for most people. Being prepared beforehand can make the loan closing less confusing and a much easier overall experience.

What is the Loan Closing?

When closing a loan, the ownership to a property is transferred from one individual to another, while the person who buys the property receives a mortgage loan. Loan closing is a fairly complicated process, and it involves key decisions that will save you or cost you money.

The closing takes place at the office of a closing agent with someone working for the lender or the title company. Sometimes the closing agent can be a lawyer that was hired by you or the lender. The closing agent’s job is to inform you of what documents need to be signed and collect all of the paperwork from the buyer, the seller, and the lender.

During the meeting with the closing agent, you will discuss and agree upon the terms of your mortgage, your loan will go into effect and you will receive the loan, and the ownership of the property is transferred to you. Completing all of these steps requires the reviewing and signing of several documents.

Who Attends the Loan Closing?

Depending on state law and local customs, several people will be involved in the loan closing. People who are usually involved in the sale of a property are the seller, his or her real estate agent, your real estate agent, and the closing agent, who will usually be an attorney or a closing officer who works for the lender. If you are buying a property together with a spouse or a partner, all the people whose names are on the mortgage will have to be present or have an appropriate representation. If you are buying a unit in a new development, such as an apartment complex, multiple homebuyers will be present at the closing. Sometimes the closing can be private with only you and the closing agent present.

You can also hire a real estate attorney to assist you with the closing. Some legal questions can’t be answered by the closing agent, so having a real estate attorney present is a good idea, especially if you are buying a property that is for sale by owner. Your real estate agent doesn’t receive the commission until the loan is closed, so having additional people represent you will make sure that your best interests are being protected. Hiring a real estate attorney may cost you some money, but it will help you avoid more expensive issues that could arise in the future.

What You Need to Provide

The closing agent and the lender will be responsible for getting most of the documents ready for your closing, but there are some that you will need to provide. One document that you will have to bring to the closing is your homeowner’s insurance policy and proof of payment. Many times the lender will need to take a look at your insurance policy before scheduling the closing.

Another document that you will have to bring to the closing is a check for all of the closing costs. You have the right to receive a copy of the HUD-1 Settlement Statement at least one day before the closing. All the fees that you will be required to pay should be negotiated before the closing.

Closing Costs

How much you will have to pay at closing depends on many factors, but here are some of the fees that you will need to cover before closing on the loan. You can find out from the lender how much this is going to cost you a few days before the closing.

  • Application fee. The application fee is determined when you apply for the mortgage loan, and it covers the processing of your application. This fee may include the property appraisal fee and the credit report cost.
  • Appraisal fee. Also normally charged when you apply for the mortgage loan, this fee represents the cost of an independent home appraisal.
  • Origination fee. Usually charged as a percentage of your mortgage loan, this fee covers the cost of processing your mortgage application and completing your loan.
  • Points. Points are fees that you pay to the lender in order to receive lower interest rates. Usually, a lender will offer you several mortgage loans with different interest rates. The lower the interest rates, the more you will have to pay on points. Points are also charged as a percentage of the mortgage loan. 1 point represents 1 percent of the loan value.

Documents that You Will Be Signing

During the closing process, you will have to sign several documents. Here are the most important ones:

  • HUD-1 Settlement Statement. A very important document, the HUD-1 Settlement Statement contains an itemized listing of fees charged at closing. This document will be signed by both the seller and the buyer, and it is also known as the closing statement.
  • Truth-in-Lending Statement. This paper contains the terms and conditions of your mortgage, including the APR and several other fees.
  • Mortgage note. This document is basically your promise that you will pay back the mortgage loan, repaying your debt with the lender. It also includes the penalties that the lender will charge if you fail to make your monthly mortgage payments on time.

The loan closing process may seem confusing, but it is your duty to inform yourself on all that this process entails and do your homework before buying a home. Not only will this make things easier for you when the time comes to close the loan, but it could also save you money. Seeking professional help from a real estate attorney is also a great way to make sure that your interests are protected and that you won’t have any unpleasant surprises with your mortgage loan in the future.