It’s Not Just About Your Down Payment

Purchasing a home is exciting and an adventure – even for second-time buyers. However, seasoned buyers are more likely to remember something first-timers may not realize…Your initial investment may be more of an investment that you thought. That scary down payment isn’t the only cost you need to consider. You also have to anticipate and plan for other expenses that come up through the process.

Closing costs and reserves

In addition to the down payment, there are fees that you pay to the lender, such as processing and administration fees, and fees that go to third parties, such as appraisers. Borrowers also incur title, document delivery, and recording fees, which go to the recording body, usually the county.

Other costs include items such as prepaid interest, which is the interest you pay on the new mortgage from the day you take it out through the end of the month. Depending on your state, you also may have to provide property tax reserves at closing.

Seller, tax, and lender credits

The good news is that you are likely to receive credits at closing that will offset some of the costs associated with the mortgage. These credits will come from the seller, the lender, or both.

Closing cost credits are often used as incentives by sellers to help sell their homes; credits make properties more attractive to potential buyers by lowering the out-of-pocket expenses the buyer would otherwise incur. They include closing cost and property tax credits. Lender credits are offered by some mortgage providers to make their services more attractive to potential borrowers.

Bear in mind the fact that credits, regardless of where they come from, can only be used for closing costs and asset reserves; you can’t use them toward a down payment. However, they still will represent a real boon to cash-strapped buyers. And what home-buyer isn’t?

You Now Have a Host of Options for Getting a Mortgage

When you shop for a mortgage these days there are several different ways that you can go about it. These different channels, as they are called, offer the mortgage consumer a host of options.

Mortgage brokers

Brokers work with you – the borrower – to determine your needs. Then they go out and shop your loan to several lenders to find which one
will offer you the most favorable terms. The processing of your file will be done locally, but most likely the underwriting and other functions will be done offsite. At closing, the lender will wire money to the title company.

Mortgage Banker

Bankers are a bit different than brokers in that the entire process, from application to closing, is handled internally. The mortgage bank will use its own funds to complete the transaction at the closing table. Loans obtained through a mortgage banker eventually will be sold to end investors, who supply the guidelines under which these mortgages are underwritten. Bankers work with multiple lenders/investors to give potential borrowers a wide range of options when they finance their homes.

Retail Lenders

This group is largely made up of the big box banks – large retailers, who can now provide lending services to customers. Retail lenders process and underwrite the mortgages, though probably in a different location, and fund their own loans. Eventually, the mortgages are sold to investors. Big box banks offer a wide variety of programs and competitive rates, but may have fewer options available than brokers or bankers.