The housing market has certainly heated up throughout the country and particularly in parts of Florida, Arizona, California and Las Vegas. It is still below historical levels in terms of the home affordability ratio (median income price to media family income). We expect further upside in the coming months and throughout 2013. With that said, there are many homebuyers working through the details of their mortgage application. It’s important to know how to negotiate with your lender.
Don’t be afraid to shop around and apply for a mortgage with more than one lender. The credit reporting bureaus will not penalize you for multiple inquiries as they factor in home purchases to their model. After applying, review the Good Faith Estimate (GFE) in detail. If there is a significant disparity in estimates among lenders, then request an explanation from the lender. In addition, don’t just compare the total closing cost estimate – review the detailed costs behind each estimate. The highest ticket items are usually the loan origination fee (~1% of loan amount), the “points” to reduce the overall loan interest rate and finally the funds put into escrow for property taxes and insurance. Please note that property taxes will vary by city and state, but you can still do the math yourself to double check the lender. You can also try to negotiate the title insurance and ask for a reissue rate and see what other lenders quote you at. The home insurance too is subject to estimates, so try to negotiate that one as well. Lender fees in general should be negotiated as much as possible as those are the most discretionary expenses on the GFE.
Beware of predatory lender practices
Some lenders blatantly provide low Good Faith Estimates to persuade the buyer to move forward with the mortgage. Then, at closing when the actual cost is known, it’s hard for the buyer to back out. So, if the estimate sounds too good to be true, then that is probably the case. Generally speaking, closing costs run about 3% to 5% of the loan amount. In simple terms, this means that if you are applying for a $300,000 loan, then a 5% closing cost estimate is equivalent to $15,000. A closing cost estimate in the 1% range should definitely start to raise a red flag.
More questions? Ask your mortgage questions online.
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