Lenders should give you a "good faith
estimate" of what the closing costs will be before you start
the loan process. Closing costs are what you will pay over
and above the cost of the house, and include points, appraisal
fee, title search, recording fees, survey, transfer charges, property
taxes and any other costs related to the deal. Read Bankrate.com's
to the bottom line can be tricky business for mortgage applicants,"
for the skinny on this.
There may be fees left off the "good
faith estimate" the lender gives you. Ask the lender
to tell you about the fees that aren't listed, ask him to waive
them, and get it in writing.
Beware of "packing." That's
when a lender packs in charges for services you don't need, such
as credit insurance. Read Bankrate.com's "Borrower
beware: bad home equity loan can lead to foreclosure,"
and make sure you read all documents carefully before you sign
Ask to have fees that go directly to the
lender, such as "document preparation charges," waived.
There are plenty of fees that the lender pays to third
parties for the benefit of the borrower, and it deserves to be
reimbursed for them. However, it's the lender's job to prepare
documents; the borrower shouldn't have to pay extra for that.
For more on fees, read Bankrate.com's "Mortgages:
Part I: Other house buying costs."
If you put down less than 20 percent, you'll
be expected to carry private mortgage insurance (PMI).
PMI protects the lender at the expense of the borrower, and borrowers
hate it like poison. One way around PMI is to get two mortgages;
one to get you to the 20 percent equity level, the other to cover
the remaining 80 percent. The smaller loan can be expensive, because
it carries more risk. To find out more about PMI and if two mortgages
makes sense for you, read Bankrate.com's "Mortgages:
Part I: Private Mortgage Insurance (PMI)."
Everyone doesn't get the same loan rate.
To get a loan with a decent rate, your total debt to income ratio
(how much you pay out each month for debts, such as mortgage,
loans, alimony, credit cards divided by your gross monthly income)
should not be more than 36 percent. Have some idea of how much
house you can afford before you start shopping.
Paying points to reduce the loan rate doesn't
always make sense. Use Bankrate.com's "Should you
pay points on your mortgage" calculator to figure out how
long it will take to recoup the cash you lay out for points. It
usually doesn't make sense to pay points if you're only going
to own your home for a couple of years.
"Lock in" provisions vary by lender.
If interest rates are rising, you will want to "lock in"
the rate as soon as possible; if they're falling, you'll want
to delay as long as possible. For more on "lock in"
provisions, read Bankrate.com's "Lock-and-float
programs give home buyers peace of mind."
-- Posted: Dec. 27, 2000