The First Time HomeBuyer magazine » closing costs

Kiplinger writer shares her home buying tale, and offers tips.

Alex — Fri, 24 Apr 2009 18:00:51 +0000

Cameron Huddleston’s first time home buyer experience may be similar to some of you who’ve recently walked the seemingly winding path to home ownership. The big difference here is she gets to share her experience, and very timely home buying tips, with the entire world as a writer for Kiplinger.com.

The home buying process while generally an enjoyable experience overall, may have some hurdles along the way. With her husband in tow (or maybe it was the other way around), they both learn important actions to take regarding searching for a home online, home inspections, and the closing process to name a few. The move had been initiated by Cameron’s husband needing to relocate for a new job. Unfortunately, in some respects, they had to learn a couple lessons the hard way.

For instance, during what I’d call a worrisome game of ‘Whose house is this?’, Cameron recounts arriving at “their” new home to find the original owners still occupying the space – and not packed.

Whoa…

So with all of that behind her and just a little but wiser, Cameron offers her own 7 crucial tips for first-time buyers:

Lay the groundwork.
Take your time.
Realize you won’t find the perfect home.
Accompany the inspector.
Pay attention to the little things.
Be ready to negotiate.
Don’t spend all your money on the down payment.

P.S. Number 7 is my number 1.

California First-Time Home Buyer Program Turns $1,000 Into $4,000.

Alex — Wed, 22 Apr 2009 02:40:57 +0000

The Federal Home Loan Bank of San Francisco announced today that they will award $10 million in matching grants for buyers it serves in California, Arizona and Nevada. According to their press release, The Bank allocated $6.7 million for the Workforce Initiative Subsidy for Homeownership (WISH) Program and $3.3 million for the Individual Development and Empowerment Account (IDEA) Program to 32 members.

There are income qualifications for both programs (officially up to 80% of your regions median income) so you must contact your participating bank. Qualifying for the WISH or IDEA programs means that home buyers will see a $3 match for every $1 contributed. The money can be used for down payment and closing costs, opening a path to home ownership that is normally its’ greatest challenge.

For more info go to www.fhlbsf.com. Read the rest of this press release at Earth Times.

Twenty Terms You Must Know And Understand Before You Sign Off On Your Mortgage

admin — Thu, 02 Apr 2009 23:21:50 +0000

Buying a home is a major achievement in anyone’s life. Pride of ownership, tax breaks, equity, and the ability to increase your wealth and net worth are just a few of the many benefits you’ll enjoy with your new home. Your home purchase may also be one of the largest you will ever make.

During the emotional excitement of buying a home, you may encounter terms with which you are unfamiliar. For some people, it can be a bit embarrassing to ask what they consider too many questions. Others may make a note of their questions but forget to revisit them. To ensure that you have complete confidence during your home loan process, invest a moment to read this information and become familiar with the concepts and terms you’ll encounter. Knowledge is power, and the more you know, the more successful your decisions will be and the more soundly you will sleep at night having made them.

1. Adjustable Rate Mortgage (ARM)–Also referred to as a Variable Rate Mortgage–a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. For example, let’s examine a 5/1 ARM at 6.25% with 5/2/5 caps and a margin of 2.75 over the LIBOR index:

A. 5/1: the “5” means that the interest rate is fixed for five years. The “1” means that the interest rate adjusts one time every year after the first five years.

B. 6.25% means that the interest rate is fixed at 6.25% during the first five years. This is called the initial start rate.

C. 5/2/5 caps:

1) The first number“5”–means that the interest rate can adjust up to 5% over the initial start rate in the first year after the fixed period ends (year six). If the initial start rate is 6.25%, the interest rate can go up to 11.25% in year six (6.25% initial start rate + 5 = 11.25%).

2) The second number –“2” –means that in every year after the first adjustment in year six, the interest rate can adjust up or down up to 2% annually.

3) The third number – “5” –means that the interest rate can never go up more than 5% over the initial start rate during the entire life of the mortgage. In this example, the maximum interest rate over the life of the mortgage would be 11.25% (6.25% initial start rate + 5 = 11.25%).

D. 2.75 margin–In this example, the margin of 2.75 over the LIBOR index means that after the first five years, the interest rate would be calculated by adding 2.75 to the London Interbank Offered Rate index at the time of the adjustment. See your certified mortgage planning specialist (CMPS) for more information on various types of ARMS and which index is better for your situation.

2. Annual Percentage Rate (APR)–An interest rate that reflects the cost of a mortgage as a yearly rate. This rate takes into account any points and fees (closing costs) and is based on the loan going to its full term. APR can often be manipulated by lenders, and it is often inaccurate with ARMs.

3. Appraisal–A written report containing an estimate of property value and the data on which the estimate is based. Appraisals are prepared by a licensed appraiser who is independent of the seller, buyer, lender, and real estate agent. The appraiser inspects the subject property and compares it with other similar properties that have sold in the area to determine the fair market value. The mortgage lender bases the loan-to-value ratio on the appraised value of a property and not its sales price. If you are refinancing a property, an issue called “seasoning” may come into play. This affects which value the lender allows you to use when determining the mortgage balance.

4. Assumption–An agreement between buyer and seller in which the buyer assumes responsibility for the seller’s existing mortgage. This agreement could potentially save the buyer money because closing costs and the current interest rates, which are possibly higher than when the existing mortgage originated, do not apply. In most residential mortgage transactions, loan assumption is not an option because the seller’s existing mortgage normally has a “due on sale” clause that requires the seller to pay off the mortgage if the house is sold or if ownership is transferred. This issue often comes into play with real estate investment strategies.5. Buydown–A method of lowering the buyer’s monthly payment for a short period of time. The lender or homebuilder subsidizes the mortgage by lowering the interest rate for the firs few years of a loan. This strategy can be very effective in today’s market.

6. Closing–Also referred to as settlement. The meeting at the conclusion of a real estate sale in which property and funds are exchanged between the parties involved.

7. Closing Costs–The total points and fees that are associated with completing a mortgage transaction or a house purchase or sale. Often, a good negotiation strategy for both the buyer and seller is for the seller to pay closing costs on behalf of the buyer.

8. Debt-to-Income Ratio–The ratio, expressed as a percentage, that results from dividing a borrower’s monthly payment obligation on long-term debts by the borrower’s gross monthly income.

9. Down Payment–Cash paid by the buyer at closing that makes up the difference between purchase price and the mortgage amount.

10. Earnest Money–Money a buyer gives to a seller as a deposit to commit the buyer to the future transaction. Earnest money is subtracted from closing costs.

11. Equity–The value an owner has in real estate over and above the obligation against the property. Equity is fair market value minus the current mortgage and other liens. Real estate equity should be managed just like any other investment.

12. Escrow–Funds given to a third party that holds the funds to cover payments such as tax, insurance, and earnest money deposits.

13. Fixed Rate Mortgage–A mortgage in which the interest rate remains constant and fixed throughout the life of the loan

14. Loan-to-Value Ratio–The ratio between the amount of the mortgage loan and the appraised value of the property

15. Market Value–The price that a property could possibly bring in the marketplace

16. Origination Fee–A fee charged by a lender for processing a loan application. The fee is usually computed as a percentage of the loan, and some lenders use the term as another name for points.

17. PITI–Refers to Principal, Interest, Taxes, and Insurance

18. Points–Prepaid interest charged by the lender. One point is equal to 1% of the loan amount (on a $200,000 mortgage, one point = $2,000).

19. Private Mortgage Insurance (PMI)–Insurance that protects lenders against loss if a borrower defaults. PMI is required when the loan-to-value ratio is greater than 80%. The PMI payment may not be tax deductible and is usually added to the monthly mortgage payment ; however, there are ways to finance up to 100% of your home’s value and avoid PMI. These strategies include Piggyback Mortgages and Lender Paid Mortgage Insurance. In today’s market, Lender Paid Mortgage Insurance can often be the best strategy.

20. Underwriting–The decision-making process of granting a loan to a potential homebuyer

If you have questions about any of these terms and how they might apply to you or your mortgage, ask a CMPS professional for more details.

This article is reprinted with permission from Benchmark Mortgage. Tom Coulombe was a loan officer for Benchmark Mortgage, and he recently passed away. We will deeply miss him and have printed this article in his memory.

No Fee Mortgages – Nothing In Life Is Free!

admin — Thu, 02 Apr 2009 23:16:23 +0000

A proliferation of “No Fee” mortgage programs are being advertised lately, and who can refuse something for free? As your mother told you when you were growing up, though, nothing–or almost nothing–is free, and beware of things that appear to be too good to be true.

The “No Fee” mortgage has been around for years and has recently been repackaged and remarketed. Although a “No Fee” mortgage is not really free, it may be an appropriate product for some borrowers; however, others may want to opt for a “Full-Fee” mortgage.

The way it works with a “No Fee” mortgage is that the lender increases your rate to cover the cost of the lender fees that you would normally pay at the time of application and/or at closing, such as an application fee, appraisal fee, credit check fee, documentation preparation fee, lender title insurance, etc. Rates can be as much as half a percent higher than a standard mortgage. Also, not all fees are covered, such as per diem interest, tax escrows, attorney fees, hazard insurance escrows, etc., so you will still incur closing costs. Be prepared to pay additional costs at the closing.

Lenders can also increase the rate even more, to include the cost of mortgage insurance (MI), which is insurance required when you borrow more than 80% of the value of the home. “No Fee” mortgage rates without MI can be as much as 5/8% higher than a standard thirty-year fixed-rate “Full Fee” mortgage. As an example, a thirty-year fixed rate for a “Full Fee” mortgage at the time this article was written was 6.750%. A “No Fee/No Mortgage Insurance” rate may be as high as 7.375%. Let’s compare mortgage payments on a $250,000 loan with a 10% down payment that requires MI:

Full Fee Mortgage w/MI No Fee/No MI Mortgage

Rates 6.750% 7.375%

Principal and Interest Payment $1,621.50 $1,726.69

Mortgage Insurance $108.33 Included

Total Payment $1,729.83 $1,726.69

Monthly Payment Savings $ 3.14

Lender Closing Costs $1,800.00 $0

As you can see from the above example, there is no real difference in your monthly payment initially. The real benefit to the “No Fee” mortgage lies in the lender closing cost savings, which amount to approx. $1,800.00. Lenders offering “No Fee” mortgages usually include only those fees normally paid to the lender, which does not represent all of the closing costs you will pay.

To see the whole picture, though, you need to look beyond this initial cost savings. The cost of MI can be dropped after a period of time, either because of property appreciation or once the principal balance of the loan is paid down below 80% loan to value, so your savings at the lower “Full Fee” mortgage rate can really add up.

Once MI is dropped, you can see the example below:

“Full Fee” Mortgage “No Fee/No MI” Mortgage

Rate 6.750% 7.375%

Principal and Interest Payment $1,621.50 $1,726.69

Mortgage Insurance None Included

Total Payment $1,621.50 $1,726.69

Monthly Savings $105.19

Yearly Savings $1,262.28

Breakeven (# of months) 17.11

Five-year Savings $6,311.40

Ten-year Savings $12,622.80

As you can see from the above example, once the MI payment is dropped, the annual savings at the lower interest rate is huge. While you saved $1,800.00 at the closing, the breakeven period is 17.11 months to recover that amount at the lower rate of interest. The choice between the “Full Fee” mortgage and the “No Fee” mortgage is very much dependent on how long you intend to be in the home. Although the “No Fee” Mortgage had an initial savings, over the longer term, the “Full Fee” mortgage is a much better bet.

Most lenders offer both programs, and their mortgage experts can show you the pros and cons for your particular situation, loan amount, down payment, etc.

What appears to be free may not be free, so make sure to compare all of your options and do the math.

Christopher N. Dannen is vice president and residential lending sales manager for People’s United Bank in Bridgeport, Connecticut, and first vice president of the Connecticut Mortgage Bankers Association.

To Refinance or Not to Refinance? That is the Question!

admin — Tue, 24 Mar 2009 01:02:16 +0000

When interest rates are lower than a homeowner’s mortgage rate, the homeowner should definitely contact multiple lending institutions for competitive home mortgage loan refinancing rates. I would start with the lender who services my loan. Some lenders have “Express” or “Streamline” refinance programs for their clients and offer reduced rates and fees.

If you are ready to consider refinancing, first you need to carefully assess your financial situation and goals before making any final decisions. Answer the following questions:

1. Is your goal to lower your monthly payments?
2. Do you need to consolidate debt?
3. Do you need cash for large purchases?
4. Are you seeking to adjust your interest-deduction expense for tax purposes?

Once you determine your reason for refinancing, consider the amount of cash back you require. Using a mortgage refinance calculator (Bankrate.com or your bank’s Web site), determine the amount of savings per month and annually according to the lowest available refinance rates.

Q. Should I refinance?

Sometimes it makes sense to refinance. Sometimes it does not. It depends greatly on what your financial goals are. For instance, wanting to lower your interest rate and/or payment are good reasons to refinance, but there are other factors to consider. Here are a few things to think about:

· How long do you expect to be in the home? (Under two years—-probably not a wise move to refinance.)

· How much equity do you have in the home? (What is the current market value of your home minus what you owe?)

· How much will your closing costs be? (Your lender should supply you with a good-faith estimate.)

· To get that low rate, will you have to pay points? (A point is one percent—see question on “points” below.)

· Will your lower payments more than make up for the closing costs, fees, and points, if any?

· Is there a pre-payment penalty on your current loan? (If there is, it will be added to your closing costs or to the final pay-off of your current loan.)

Q. Should I refinance from an adjustable-rate to a fixed-rate mortgage?

It depends on your situation. Generally it’s a good idea to get the lowest fixed rate possible; however, if you’re in the first year of a five-year adjustable rate mortgage (ARM) and you plan to move in three years, it may not make sense for you to refinance.

Q. Are interest rates higher for a cash-out refinance?

The interest rate you pay on a cash-out refinance loan will generally be the same that you pay on a non-cash-out loan. There may be an incremental fee associated with a cash-out refinance loan depending on the specific loan program you choose and the loan-to-value ratio. Using the equity in your home to pay off other bills can be a smart thing. Consider taking some money out to pay off credit card bills, auto loans, and any debt that has interest that is not tax-deductible. You may be able to deduct the interest on the money you take out to pay off that debt. Consult your tax advisor.

Q. When should I “lock-in” an interest rate?

Nobody can predict interest rates, but historically, rates go up much faster than they come down. If you’re thinking about buying a home or refinancing your mortgage, get the good rate now (you can always refinance later if rates drop again). Normally your rate is locked at the time of application.

Q. Should I pay points to get a lower rate?

A point is 1%. (One point on a $200,000 loan is $2,000, 2 points is $4,000.) If you’re refinancing your mortgage, paying points may not be your best option. Points paid on a refinance can be deducted from your taxes only in small increments—1/30th a year for a thirty-year mortgage. It could be several years before your lower rate makes up for the points you pay.

Q. Are there really loans with no closing costs?

There are few loans that truly have no closing costs. Sometimes lenders will not charge application fees and agree to pay the appraisal and title fees, but they may increase the interest rate. Lenders can also roll the costs into the amount of your loan, so because you’re not paying costs up front, it’s called a “no closing cost” loan. While slightly increasing your mortgage might be acceptable to you, keep in mind that it’s not really a cost-free loan. Do you really think the appraiser that comes to your home is doing it for free or that your attorney is doing a title search and recording at no charge? There are no free lunches in lending money.

Q. How much money will I need to bring to closing?

A general guideline is that you’ll need three percent of the purchase price of the home for prepaid interest to cover the time between the date you close and your first mortgage payment. Some states may also require prepayment of property taxes. When refinancing, however, your old mortgage will most likely have money in escrow that can cover these costs. Some borrowers get short-term loans while this escrow transfers back to them, but most pay the money at closing, knowing they’ll get it back when their escrow is returned.

Refinance Check List

The first thing you’ll do when refinancing your mortgage is complete a loan application. You may also need to provide a variety of documents to help your mortgage lender approve you for a home loan. The documentation will vary depending on the lender you choose, your loan program, and your personal financial situation.

The following is a list of documents generally required when applying to refinance. You may or may not need them all, but for a fast and easy loan process, have these items available when you’re ready to complete your mortgage application.

· Proof of income—typically, you’ll need to show original pay stubs for the previous thirty days.

· Copy of homeowners insurance—this information verifies that you have current and sufficient coverage on your home.

· Copies of your W-2 forms—each loan applicant is required to supply these forms; they help your lender verify past employment and income history.

· Copies of asset information—asset information includes statements for savings, checking, and 401(k) accounts, investment records for mutual funds or stocks, and accounts holding money for closing costs.

Keep in mind, the more information you have ready before you apply, the faster you’ll get approved and close your loan.

David Gold is a loan officer for Sovereign Bank. He can be reached at 860-570-3171 or dgold@sovereignbank.com.

How to avoid Abusive Closing Costs

admin — Tue, 24 Mar 2009 00:58:58 +0000

What Are Closing Costs?

After months of searching, you have finally found the house of your dreams. Now comes the closing! Closing is the exciting but anxiety-producing day when you meet with the representatives for the seller and the lender to sign paperwork transferring the property and agreeing to the financing terms of your mortgage. “Mortgage settlement” or “mortgage closing” is a complex process that requires buyers to pay a variety of expenses over and above the price of the property. As a general rule, settlement or closing costs are usually about 3% of the price of your home.¹ You will need to bring to your closing sufficient funds to cover closing costs and your down payment.

Predatory Lending and Closing

At the Connecticut Fair Housing Center we assist people living in minority- and poverty-concentrated areas who are the victims of illegal predatory lending. Because closing on a house is such a stressful time, it is one of the key instances in the home buying process where predatory lenders take advantage of unwitting consumers. There are three classic ploys that predatory lenders frequently use at closing.

1. Excessive and/or new closing costs. Predatory lenders often pad the fees they charge borrowers for their own financial gain. That is why it is important for consumers to educate themselves about fair prices for closing costs. Predatory lenders also add new fees or increase previously disclosed fees at the last minute. Be prepared to walk away from the closing if you are being treated unfairly.

2. Bait and Switch. Some predatory lenders try to lure you in with a fantastic rate and then change the rate or other loan terms at the last minute. Some variation in the interest rate should be expected unless you lock in your rate.² However, a significant increase in the interest rate, the sudden addition of a prepayment penalty, or the last-minute conversion of the loan to an interest-only, negative amortization, balloon, or adjustable rate mortgage (ARM) at closing could indicate that you are being taken advantage of by a predatory lender.³

3. Rushed Closing. Another infamous predatory lending technique is to rush the borrower through closing or hold the closing in a distracting location, such as a noisy restaurant. Demand that the closing be scheduled to allow you enough time to review the documents uninterrupted.

Closing Tips for the Savvy Consumer

Here are some tips to follow to avoid getting a predatory loan and to take the stress out of closing on your home. Please remember, however, this advice is general, and you should consider consulting with an attorney or a HUD-approved housing counselor if you have specific questions about your mortgage closing. (See Where to Find Help at the end of this article for attorney and counselor contact information.)Come Prepared. The more you educate yourself about the closing process, the better equipped you will be to ensure you are getting a fair deal. Talk with a trusted advisor, a HUD-approved housing counselor, or your attorney. Go to a library or a bookstore and get a book on home buying. Carefully review the section on closing. Some on-line resources are available at:

The Federal Reserve Bank: http://www.federalreserve.gov/pubs/settlement/default.htm
U.S. Department of Housing and Urban Development: http://www.hud.gov/buying/#loan

You are entitled to ask questions about the settlement costs you will be charged. If your lender or broker cannot explain them, he is not doing his job, and he may be overcharging you. No question is a dumb question, and if the lender or broker makes you feel otherwise, take your business elsewhere.

Comparison Shop and Negotiate. Use the rule of three–go to at least three lenders. No later than three days after you submit your application, a lender or broker is required to give you an estimate of your closing costs on a form called the Good Faith Estimate. Don’t pay an application fee until you have received this form and you have chosen a lender!

The charges on the Good Faith Estimate should correspond to the charges on a form you will receive at closing (or twenty-four hours before closing) called the HUD-1 Settlement Statement (called a HUD-1A, if you are refinancing). The Good Faith Estimate itemizes the charges associated only with your loan. There will be additional settlement charges that relate to your purchase of the property itself, such as oil, water, and tax adjustments. The lender or broker must also give you a booklet explaining the costs in the Good Faith Estimate.

Compare the Good Faith Estimates offered by the three lenders, contrasting the itemized costs and the grand total. Many of the charges in the Good Faith Estimates you receive will vary considerably from lender to lender. Make the lenders compete for your business. Ask the lenders which charges will not change on the day of closing. Make the lender put this promise in writing.

When comparing rates, look at both the interest rate and the annual percentage rate (APR). The APR is a tool for comparing similar loan products at different interest rates and with different closing costs.⁴ The Good Faith Estimate and the APR together allow you to compare the rates and closing costs offered by the lenders you are considering.

Keep the original Good Faith Estimate you receive from the lender you ultimately choose. You are entitled to a final version of your HUD-1 or HUD-1A one day before your closing, but you must request it, and it is important that you do so. Inform the settlement agent that you will need this form the day before closing.

The night before closing, compare the final closing costs you are charged as listed on the HUD-1 or HUD-1A to the original estimate on the Good Faith Estimate. Compare these costs again during the closing itself. If any of the charges are significantly different, demand an explanation. If your lender has promised in writing to stand by his original estimate and fails to do so, you may want to consult an attorney.⁵

On-Line Resources:

1. To see a copy of a Truth In Lending Act Disclosure that shows the APR and the Good Faith Estimate with an explanation of key aspects, go to http://www.nw.org/network/comstrat/refinancing/documents/Refinance06Overheads-T-I-LGFE01-2006.pdf
2. A form you can use to compare closing costs is available at http://www.hud.gov/buying/booklet.pdf on page six.

Know Your Rights

You have the right to comparison shop!
You have the right to ask questions!
You have the right to request and receive a copy of your HUD-1 or HUD-1A Settlement Statement one day before closing. This form is your final statement of closing costs.
You have the right to receive a Good Faith Estimate of the charges associated with the loan before you agree to it.
You have the right to know which fees will not be refunded if you do not go through with the deal.
If you are refinancing, you have the right to void the loan within three days. If you are refinancing and feel something was not quite right during your closing, you have three days to cancel, or rescind, your loan. Many legitimate lenders can quickly find financing for you within that time, should you decide to void your original loan. Under certain circumstances, you may be able to cancel your loan up to even three years later. To explore this option further, consider contacting an attorney.
If you are getting an adjustable rate mortgage (ARM), you are entitled to a book that explains important details about this kind of loan.
You have the right to say no at any point in the process. If your questions have not been answered, the deal seems too good to be true, or you change your mind, don’t sign the mortgage documents. You may lose your deposit, but at least you won’t be stuck with a bad loan for fifteen to thirty years!
If you decide to use a mortgage broker, you have the right to have him explain how he will help you and how he will be compensated by you or the lender. If you are considering using a mortgage broker, compare his offer to that of at least two banks.⁶
You have the right to a decision about a loan that is not based on your race, color, religion, national origin, sex, marital status, age, or whether any income is from public assistance.
You have the right to know the reason your loan application was denied.
You have the right to a booklet that explains your settlement or closing costs.

You have the right to hire a lawyer who is representing only your interests and not those of the lender as well. Many borrowers don’t realize that the attorney they pay to come to the closing is representing them and the lender!

It is very difficult to get a true estimate of typical settlement charges, something consumers need, to determine if they are getting a fair deal. On www.firsttimehomebuyer.com you will find a chart that is an effort to pull together information from a variety of sources to provide a realistic sense of what settlement costs to expect. This list is not exhaustive, however, and your particular circumstance may mean that you are charged more or less than these estimates or that you incur additional charges not listed on the chart. Closing costs comprise origination, title, and closing fees.

Closing costs add up. The same survey that generated the itemized amounts included in the chart reported that the total average of closing costs in Connecticut for a $200,000 loan is $3,284.⁷ Because the estimate excludes certain charges, such as recording fees, escrow funds, and homeowner’s insurance, a more realistic total is $6,000 (or 3% of the amount borrowed). Closing costs are significant and unavoidable; however, by educating yourself, reviewing documents carefully, and comparison shopping, you can save significant amounts of money and avoid predatory lending traps.

Where to Find Help

Agencies and Organizations

HUD-Approved Housing Counselors: http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm
Connecticut Fair Housing Center: 1-888-247-4401 or http://www.ctfairhousing.org/
Connecticut Bar Association: (860) 223-4400 or http://www.ctbar.org/
Connecticut Housing Finance Authority: (860) 721-9501 or http://www.chfa.org/FirstHome/firsthome.asp

Web Resources

Federal Reserve Board’s Consumer’s Guide to Settlement Closing Costs: http://www.federalreserve.gov/pubs/settlement/default.htm
U.S. Department of Housing and Urban Development information on buying a home: http://www.hud.gov/offices/hsg/sfh/res/sc3secta.cfm

The Mortgage Professor (website hosted by Jack M. Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania): http://www.mtgprofessor.com/Default.htm.

Erin Boggs, Esq.⁸, is an attorney with the Connecticut Fair Housing Center in Hartford, Connecticut.

NOTES:

1 Under Connecticut law, costs associated with a loan called “prepaid finance charges” cannot exceed the greater of $2,000 or 5% of the loan amount of a first lien mortgage. Connecticut General Statute § 36a-498a. It is beyond the scope of this article to provide more details about this legal protection, but if your closing costs are particularly high, you may want to consult an attorney.

2 For more on rate lock-ins go to: http://www.federalreserve.gov/pubs/lockins/default.htm.

3 Explanations of these special types of loans are available at http://www.hud.gov/offices/hsg/sfh/buying/glossary.cfm.

4 The APR does not take all fees into account. For example, it does not include appraisal and document preparation charges. It is worth asking each lender you consider for a list of fees that are not included in the APR. In addition, if you are considering an adjustable rate mortgage, the APR does not represent the true cost of the loan.

5 If the terms of your loan change, for example the loan is changed to an adjustable rate mortgage, the lender must give you a new Good Faith Estimate. The lender does not have to give you a new Good Faith Estimate if the closing costs change in advance of issuing the HUD-1 or HUD-1A.

6 Many mortgage brokers are responsible partners in the home buying process, but there are some bad apples!

7 All the average costs listed in the chart for a $200,000 total $3,907. This figure is greater than the total average cost because the individual costs listed are an average of those actually charged by lenders in each category and not all lenders impose all fees.

8 Erin Boggs is an attorney with the Connecticut Fair Housing Center, where she directs a program on predatory lending. She would like to thank Sharon Gowan of Fannie Mae and Andrew Pizor, Esq., of the Consumer Law Group for their substantive comments and Alyssa Torres, a second-year University of Connecticut Law School student, for her research assistance.

Typical Connecticut Closing Costs

Ask Questions.

Attorney Representation at Your Real Estate Closing

admin — Sun, 22 Mar 2009 11:21:39 +0000

You have done your homework, set goals, saved for a down payment, visited endless open houses, researched interest rates and chosen a mortgage lender—everything a well-informed first-time home buyer is supposed to do. Now it is time to choose an attorney to represent your interests in the purchase of your new home and at the real estate closing.

But before making this important decision, you should understand the role of the attorneys at the closing and the options you have in choosing an attorney to represent you.

At the closing on your new house, you will walk into a large conference room with a big table and lots of chairs and there will be many people there besides you. One thing that confuses people is: who are all these attorneys and what are they doing here?

One attorney will be there representing the seller. That attorney will prepare the deed to you as the buyer, prepare some of the figures for the settlement statement and get payoff statements for any mortgages or liens that the sellers already have on their house. In addition there can be one or two other attorneys there. There are two roles that need to be played but they can be played by the same attorney. One attorney is representing the lender who is giving you the mortgage and the other attorney is representing you and your interests.

Several years ago, the Connecticut Supreme Court decided a case in which they stated that one attorney can represent both the buyer and the lender in the same closing. This can provide a cost savings to you and make the process a little easier, since one office is doing all the work. The Supreme Court went on to say that if a conflict arises between these two parties, the attorney must notify both parties and must remove himself or herself from the transaction.

There can be conflicts between the lender and the buyer, but typically the parties can resolve these issues without the attorney withdrawing from the transaction. Some examples of conflicts are: the lender promised the buyer a specific interest rate and then changes the rate; or, the lender promised a closing within a specific time period and long delays put the closing date at risk.

The role of representing the lender involves assembling the documents that you need to sign at the closing; collecting the figures from other parties that need to be paid at the closing and preparing the settlement statement; and, collecting additional documents, such as payoff statements, tax information, and insurance policies. The role of representing the buyer involves doing a title search; reviewing the title search; preparing a title insurance policy; making sure that the title is free of problems; discussing any issues regarding the property or title with you; and, negotiating any issues regarding the property or title with the seller’s attorney.

The lender will assign the real estate closing to an attorney to represent them. You can choose to use the lender’s attorney to represent you as well or hire your own attorney. That decision is entirely up to you. If you and the lender use one attorney you can save some money–between $150 and $350 on average. Usually there are no conflicts and the closing process will be streamlined by using the same office to do everything. However, some people feel more comfortable having their own attorney represent solely their interests at the closing.

If you are still confused about whether to hire your own attorney or share legal representation with the lender, feel free to ask the professionals involved in the real estate transaction for advice. You can ask your mortgage representative and your realtor, but the best advice is to consult the attorney assigned to represent the lender—he or she will be able to give you the best information on this subject.

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Mike Reiner is an attorney and President of Reiner, Reiner and Bendett PC in Farmington, Connecticut. For more information, please contact him at 860-255-5001 or by email at MReiner@reiner.com.

The Gift That Keeps On Giving

admin — Sat, 07 Mar 2009 23:06:30 +0000

After the holidays pass and the excitement dies down, many people look for the best way to showcase, use, or re-gift things they may have been fortunate enough to receive. Renae France, however, received the gift of her first home this year, just in time for the holidays, and she has no intention of doing any returning or exchanging. “It feels good to invite family over to a place that’s mine. I also enjoyed decorating this year, as well.”

This particular gift was about two years in the making. Renae knew she wanted a home, but like many other people taking those first steps, saving for a down payment was going to be quite a challenge. Daycare for her then two-year-old daughter Kimberly and other life expenses seemed to make homeownership a very distant fantasy, a dream, but hope came through a telephone call. “A friend from Maryland told me about a program called NACA. She’d attended an orientation and called to tell me about it.”

NACA, which stands for Neighborhood Assistance Corporation of America, is a nonprofit organization whose mission is to set a new national standard for providing loans to low- and moderate-income people and those who are considered to be sub-prime borrowers. NACA provides prime loans to borrowers who might otherwise be subject to predatorily high rates and fees for the opportunity to own a home. New homebuyers receive the lowest rate (as of this writing it is 5.5%), with no down payment, no closing costs, no fees, and no need for “perfect” credit.

At first glance the program may sound too good to be true. Renae remembers, “I was skeptical. I didn’t think it was a legitimate program. I called Fannie Mae, who looked into it for me. The folks from Fannie Mae told me that it was legitimate and a good program to participate in.”

NACA CEO Bruce Marks had seen his share of potential home buyer heartaches. As a union activist for the Hotel Workers Union in Boston, Marks helped negotiate the first housing trust fund, which allowed union workers to use part of their wages to save for a home. He didn’t stop there. He also spearheaded an evaluation to expose predatory lending and its devastating impact on local neighborhoods. Through a two-and-a-half-year research report that focused on then Boston-based Fleet Bank, Marks was instrumental in negotiating an eight–billion-dollar reinvestment program for low- and moderate-income people. Marks calls his NACA program “the best mortgage product in America.”

What does Renae now think of the program? “I love it! They helped me to get repairs done to my new home before I bought it. I was also able to save enough to cover move-in expenses and not end up broke because of it.”

NACA, however, is not a “free ride” to home ownership. “I had to start a savings plan that I could afford and saved that amount of money each month. I was held accountable by NACA, so that I could be able to own my own home. I had to save enough to cover the cost of inspection, one month’s worth of mortgage, three months of property taxes, and one year of homeowner’s insurance. It wasn’t hard to save, because they helped me create a monthly budget.”

Monthly budgets can show a new buyer where spending “leaks” may be, and NACA facilitators like Chris Lee in Springfield, Massachusetts, helps applicants fill in those gaps so they can save more than they thought.

Remae recalls, “The toughest part might have been house hunting. At times it was discouraging, because the housing prices in this region at the time were higher than I could afford.”

When asked what day she finally got the keys to her new home, Renae exclaims, “July twenty-fifth. The first thing I did was go back to the house, order some pizza, and invite my family and friends for dinner.”
For Renae, owning a home is the beginning, and not the end, of her homeownership journey. The biggest differences she says are the yard work and “writing the check for my mortgage.”

Renae is still active with NACA and its mission. “I speak to new home buyers at NACA orientation classes to encourage people to participate in the program.”