Looking to buy a second home on the Outer Banks? Are you considering pulling some of the equity out of your vacation home to make another purchase? Every day I work with buyers and owners considering a mortgage. The two frequent questions are : What is the rate and how much are the closing costs? Customers are trying to compare apples to apples. Good idea but tough to do.
Here is an example of an online lender's closing cost estimate for a $ 200,000 mortgage. Their rate that day was 6.125% with .250 points. It sounds good because my rate that day would have been 6.25% with zero points.
Online Lender Fee Schedule - Below is
a detail break down of the estimated fees due at closing
|
| Administrative: |
$438.00 |
Notary: |
$0.00 |
| Application: |
$0.00 |
Other Costs: |
$0.00 |
| Appraisal: |
$325.00 |
Processing: |
$0.00 |
| Closing: |
$450.00 |
Recording Fee: |
$95.00 |
| Courier: |
$0.00 |
Survey: |
$0.00 |
| Credit Report: |
$35.00 |
Tax Service: |
$94.00 |
| Document Prep/Review: |
$110.00 |
Underwriting: |
$0.00 |
| Flood: |
$25.00 |
Wire Transfer: |
$0.00 |
| Inspection: |
$0.00 |
Estimated Fees: |
$1,572.00 |
The fine print states: This estimated fee schedule may not
include all fees associated with loan transaction, and does not include title
insurance policies and endorsements, escrows or prepaids, and program or local
fees.
You then compare their estimate to my Good Faith Estimate. They show $1,572 in fees and my estimate is $ 3,100. Now you are thinking - the online lender has a lower rate and their closing costs are half of what Ronnie is charging. The online lender looks like our best option. Not so fast.
What you will pay for closing costs and the estimate above are quite far apart. Lets look a little closer at each fee and the reality of what this loan will cost.
The estimate did not show the charge for the 1/4 point. A point can be considered discount or origination and is 1% of the loan.
1/4 point on a $200,000 mortgage - $500
Administrative, Application, Document/Prep Review, Notary, Other Costs, Processing, and Underwriting Fees are considered Junk Fees. Junk fees are charged by lenders to help with their bottom line.
Total Junk Fees on Estimate $ 548
Appraisal fee is listed as $325. This is a third party fee paid to the appraiser - and the going rate is $400 and up depending on the size of the home and the location (such as a day drive to Hatteras or Corolla)
Actual cost of Appraisal $ 400 +
Closing Cost is Listed at $450. The average cost for closing with an attorney in Dare and Currituck Counties is $650 and up depending on the purchase price.
Actual cost of Closing $ 650
Credit Report fee is $35. Most larger companies have negotiated a lower price for accessing your credit report. We charge what it costs us - $8.95
Flood Certification fee is listed at $ 25 - actual costs is around $ 18
Recording fee is listed at $ 95. This is an accurate fee for a primary mortgage. Actual costs will be higher if there is also a second mortgage.
Tax Service fee listed at $94 - Actual costs will be around $ 69.
Now for a big omission - the fine print:
Title Insurance for a $300,000 loan will cost $ 500
Pest Inspection $ 100 paid by the buyer (not necessary for refinance)
1 year prepaid Hazard Insurance + 2 months reserve for escrow
Two months Tax reserve for escrow
1 to 31 days of interest depending on what day of the month you close. The standard practice is to quote 15 days but many quote 1.
Bottom line - that great rate of 6.125% estimate will really cost you over $ 5,500.
I compared our rates - the same loan and closing costs would be around $3,100 (no points, junk or underestimated fees) with a rate of 6.25%. The 1/8 % higher rate would make your monthly payment increase by $ 16 per month or $ 192 per year. It will take a lot of years to get back that extra $ 2,400 you paid at the closing table. You could always convert the extra $ 2,400 the online lender is charging and buy your rate down to 5.75% (apples to apples). You could also get a rate of 6.75% and have no closing fees.
Financing a home can be confusing. It does not help that there are many in the profession that will mislead someone just to get the loan. There are so many stories of the customer showing up at the closing only to find the charges are much higher than originally estimated. Many reluctantly sign and pay the fees so they will not lose their purchase. Not to mention the barrage of radio and television ads quoting rates as low as (some ridiculously low rate) or a mortgage payment of (some ridiculously low payment). Remember - you pay for what you get.
If you have any questions about an estimate you have received or if you would like a quote for a mortgage, please feel free to contact me. I will be glad to compare fees and rates (apples to apples).
