The rate itself should not be your only concern – loan closing costs (points, origination/processing fee, appraisal, title insurance, and lender credit) are just as important. Someone could offer you 3.5% if you pay them $20K in closing costs, for example. My usual advice is to check Zillow and select the “no fees, no points” in the filter instead of the default “0 points” option. The results will show you loans that will cover most of the loan costs and might give you some credit towards other closing costs. IMO, paying points usually does not make sense, although it makes a little more sense in a rising interest rate environment.
If you don’t already have a rebating agent (one who will share a third to a half of their 2.5-3% commission), I recommend Redfin if they operate in your area. They make it really easy to schedule viewings, and you can pocket their rebate after closing (unlike a lender credit, the redfin rebate does not have to be applied towards closing costs).
From what I’ve seen, borrowing more than the conforming loan limit (currently $453,100 for single family units) usually costs more. For example, if the difference in rates between $453K loan and $454K loan is 0.125%, that rate is applied to the entire loan, not just the portion above $453,100, and the more expensive loan will cost you ~$567 per year more, even though you only borrowed an extra $1K . If possible, it could make sense to come up with a larger downpayment so that your mortgage doesn’t exceed this limit. Especially if you’re very close to the limit.
You can shop for certain services (title and escrow), but customarily this is selected by the seller (probably by the seller’s agent in most cases), at least in SoCal. Even though the escrow industry is regulated by the state, the difference between various outfits doing the same thing can be significant. I’d look through every fee and ask the escrow company to waive or discount anything that seems too high or unnecessary (you’ll have to do some research or get competitive quotes). They are interested in closing the deal and may give discounts just for asking, but they don’t have to and there’s not much you can do other than walk away. Your other option is to find your own title&escrow company, specify it in the purchase contract, and hope that the seller agrees.
Pre-pay all your credit cards to $0 (or close to $0) before your statement closing date. This is referred to as “Argyll’s rule” in another thread on here, although Argyll did not come up with it, and others, including myself, have been talking about this for years. This will give you the highest credit score you can possibly have, although the highest I’ve ever seen needed for the best rates is 760.
I’ll post more if I think of anything else.
Fixed a couple of things above after posting:
3) The rebating agent shares 1-1.5% of the transaction cost, which is 1/3-1/2 of their 2.5-3% commission. My original wording may not be clear to a first-time home buyer.
5) “hope that the buyer agrees” --> “hope that the seller agrees”.
Rate+fee depends on the loan $ amount (higher loans will have a larger lender credit if the rate chosen has a credit vs a fee). So you would have had to compared two quotes, just below and just above the limit to determine it was the “same”.
tedteddy, great job saving for a home your down payment can help in many ways. You might be able to avoid PMI and escrow of taxes. Look toward the future in a home, kids, family, two incomes? Can you support the mortgage, family without adding financial stress to your life. If the down payment does not help, consider keeping it or a portion as your “emergency fund”. Make sure homeowners insurance is “not through the roof” for some reason.
I got a mtg with Penfed aout 10 years ago. They paid ALL closing costs on a 5year adj. It has reset 2x and the rate went down. Istarted with a rate of 3.75% and latest is 2.87. It will reset in 2 years. they PAID EVERY CLOSING COST THIER WAS. EVEN WESTCHESTER TRANSFER AND NY STATE TAXES WHICH ARE VERY HIGH. they PAID ALL APPRAISAL FEES/BANK FEES/ ETC.
In my experience, the cost of waiving escrow is about a quarter of a point (reflected in the lender fee/credit). On a $400K+ loan it’s over $1K. I prefer to pay taxes & insurance myself (ultimately it’s the responsibility of the homeowner, and you can find stories about mortgage servicers failing to pay on time, which is a huge hassle for homeowners to fix), but to save the cost of waiving it I have an escrow account. I still pay taxes myself, then request a reimbursement from escrow.
Yep. Mortgage lenders want their entire loan insured. However, because the land is so expensive in some high cost areas, the cost of rebuilding can be lower than the mortgage amount. You are only required to insure the structure, not the land. If you have a dispute about the value of the building or reconstruction cost, get multiple insurance quotes and present them to the lender as evidence (been there, done that). Also most insurance quotes have default coverage limits for things like personal items, but you can often reduce those limits and save $.
What I mean is that The ltv (mainly exceeding different thresholds, 75 ltv, 80ltv, etc) and other factors (like choosing to waive escrow) cost points adjustments, which are a percentage of the loan. So does the rebate (for taking a higher rate) or the charges (to buy down to a lower rate).
For instance, my purchase and two refis each had around a total of a negative 1.8 point lender credit. This credit is a direct multiple of the loan amount that was set up. 1.8% x 150k = $2700. 1.8% x $200k = $3600. Then subtract fixed lender fees and settlement services and title insurance (title insurance likely increases with the higher loan amount) and you get the total cost for the loan at each rate. Somewhere around -$1000 @ $150k loan or -$1600 @ $200k loan for example using the rates/charges/lender/location when I last refinanced a year and a half ago.
Simply saying the “rate” as in interest rate, is the same in two situations is largely meaningless since once can pay to decrease the rate or receive a rebate for increasing the rate. It’s much more useful to look at rate as the pair of total lender fees AT a specific interest rate for both situations.
Reasonable lenders all now let you go get a quote without providing personal info directly on their website by filling in the loan details and credit range and you can easily punch in a few examples to see how this works. (Scummy/traditional mortgage brokers insist you give them all your personal info and maybe even run a credit pull before they’ll provide you any quotes).
Hire your own home inspector. This is the person that checks the house for structural damage, pest infestation, etc. Your agent will recommend their “preferred inspector” but you can save money by finding one yourself. As for title and escrow services, don’t be surprised if the initial estimate is much higher than you expect. For example, NFCU told me they are required to start those numbers high but they usually end up lower at closing. I don’t know if all banks do it this way but I don’t like it. I tried to shop around in SoCal but I didn’t get far by myself. I was told by several different escrow companies to go ask my bank. So shopping around for escrow services turned out to be misleading and possibly a waste of time because if the fees are actually state regulated, then they should be the same regardless of the servicer. In the meantime, I’m trying to close before the rate lock expires and in the end, I had to go with the bank’s preferred escrow company which is what they wanted in the first place.
Good point. I don’t know about “required” – the initial estimate is higher because they don’t always know all the numbers right away. Once all the numbers are known, you can get a more exact “estimate”. I ended up putting everything into a spreadsheet, which made it easier to track changes in the estimates.
Whose bank? And by “bank” do you really mean lender?
In my (albeit limited) experience, the escrow company can be agreed upon in the purchase contract – it’s on the standard CAR offer form. However, oftentimes the seller has an escrow open before they even receive your offer, especially if they already had a contract that fell through. And they’ll probably go with whatever escrow is recommended by their agent (and I suspect the agent gets a kickback). This has nothing to do with your lender.
Are you perhaps thinking of the title company? Because the lender will pick their own title provider for lender’s title insurance. The buyer can pick their own for owner’s title insurance or just piggy-back on the lender’s.
The state “regulates” the industry, but AFAIK they don’t regulate the rates, they only require the escrow company to submit their rates to the state in advance. (Somewhat related – the state does regulate and sets the fees for notaries).
TX regulates the insurance rates (it’s a set amount based on the insured amounts) – it was ~$1000 required commission for a $200k property of the ~$1400 total for the insurance policy, but does not fix the rates for title services. I was unable to determine if title endorsements were fixed rates or vary between providers.
I also went with the listing agents title services as it was listed as required in the listing. The title commit paperwork said I had a right to request a full itemized list of any fees they would charge before signing and that they were legally required to give them to me. They refused… Ended up being another ~$1000 between both buyer/seller, so they got ~$2000 for pushing a couple of papers. It seems like a good racket.