One of the biggest questions homebuyers have is "what is this going to cost me?" There are closing costs to pay along with your down payment and those will vary slightly.
The down payment is simply that – how much are you putting down on the home. For FHA loans, it's typically 3.5%. For VA and USDA loans, it's typically 0. For conventional loans, it will vary between 3-20% and sometimes more. Once you know that number, you need to figure out your closing costs.
This is where it can pay to shop lenders. Everyone has similar costs, but some are higher than others. The lender will charge for the appraisal and credit report, plus fees like underwriting, doc prep, processing, etc. The other possible fee is an origination fee or discount points. The origination fee is based on your mortgage amount and also the interest rate you are getting. Talk to your loan officer and decide what makes more sense for you. It may make more sense to take a slightly higher rate (usually an .125%) to eliminate the origination fee – but it depends how long you will be in the home. Compare the cost with the savings on the mortgage payment and decide what is best for you.
There are other fees that you will pay at closing. In Minnesota, there is a mortgage registration tax that is based on your mortgage amount and can vary by county. You also need to pay a $5 conservation fee and a recording fee of $46/document that is recorded. You will also pay title fees. There is a closing fee, title updates and title insurance (both lenders and owners). The title fees will vary slightly based on the title company you use. The title company is your choice although many realtors have title companies that they like to use.
The other costs at closing are what we call prepaid expenses. They are costs involved with home ownership. The interest from the date of closing until the end of the month, the first year of homeowners insurance and setting up your escrow account. Typically you need to put about 3 months of insurance and 5 months of taxes into the escrow account to make sure there is enough money in your escrow account to pay your taxes and insurance when it comes due.
Talk to your lender, get a printout showing your costs and compare it to other lenders. The interest rate can change daily, so can the origination fee (or discount points). The other fees should stay the same unless your mortgage amount changes. Compare the costs with 2-3 different lenders and decide who you are most comfortable with. It may not be the cheapest lender, but that can be ok. You may be able to get a slightly lower cost if you can show that another lender is lower – but you need it in writing and it needs to be the same day.
Make sure you know what your lender fees are so that you can make an informed decision. The best way to do that is to compare costs between a couple different lenders. Once you have locked in your interest rate, you can not change lenders, so you want to compare before you lock in your rate. As with many major purchases, it definitely pays to ask questions and compare numbers!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants, NMLS#150953 – Email – Website
