Description of Buyer's Closing Costs Articles on Mortgage Information

Following are some common questions....This information is reprinted from www.Iown.com to help educate Buyers and Sellers with the process of homebuying... What's a discount point? A discount point is equal to 1% of your loan amount. You can choose to pay points up-front to lower your interest rate. For every point you pay, your rate will go down by about 0.25%. More on discount points What's a rebate point? A rebate point is a credit from your lender equal to 1% of your loan amount. You can use this credit to cover your non-recurring closing costs, such as title insurance, appraisal and lender/broker fees, in exchange for a slightly higher interest rate. Please note that you can't get cash back from rebate points. More on rebate points What's the relationship between the interest rate and points? The interest rate and points have a seesaw relationship - the lower the interest rate, the more points that you pay up-front. And, vice-versa, the higher the rate, the fewer points you pay. Normally, you can choose from a variety of interest rate/point combinations for your loan amount and loan type. This gives you flexibility to get a loan that fits your needs. For example, you may want a loan with the lowest interest rate possible, while others may prefer a higher interest rate in order to reduce how much they pay out of pocket up-front. Before you decide on how many points to get, figure out how much you can afford to spend up-front, monthly and over the life of the loan. What's a "zero-cost" loan? A zero-cost loan has enough rebate points to cover all your estimated non-recurring closing costs in exchange for a higher interest rate. For example, you need one rebate point to cover $2,000 in closing costs for a $200,000 loan (1% x $200,000 = $2,000). However, you're still responsible for your recurring closing costs, which typically include the first 6 months of property taxes, the first 2 months of hazard insurance, and the first 2 months of mortgage insurance (if required). Back to top What are the benefits of a "zero-cost" refinance loan? Since you don't spend money up-front, you get immediate savings from a new loan with a lower interest rate and monthly payment than your current loan. For example, if you get a refinance loan at no cost, and your new monthly payment is $100 less than your current loan, you benefit from these savings right away. On the other hand, if you pay $1,200 in closing fees, it would take 12 months before you recoup these costs and begin to save ($1,200/$100 = 12). Keep in mind that a zero-cost loan makes sense if you stay in your home for the next one to three years. Any longer than that, you should consider paying points up-front to get the lowest rate, which will save you more money in the long run. What are the benefits of a "zero-cost" purchase loan? A zero-cost loan will help you free up some money for your down payment. If you have enough income to make the monthly mortgage payments, but you're strapped for cash to pay for closing costs, a zero-cost loan may be a good option. Again, you need to consider how long you plan to keep the loan. You can save money with a zero-cost loan, if you hold onto it for a short period. For example, if you buy a home to fix and sell next year, a zero-cost loan allows you to conserve money to use towards the renovations. Over time though, it often makes more sense to pay points to get a lower rate. What's a "zero-point" loan? A zero-point loan means that you don't pay any points (1 point equals 1% of your loan amount) in exchange for a lower interest rate. You still, however, need to pay for your non-recurring and recurring closing costs. A zero-point helps you qualify for a mortgage if you're short on cash. Similar to a zero-cost loan, you can save money if you plan to keep the loan for a short period of time. For example: Which loan saves you more money in the long run? $100,000 30 year fixed loan Interest rate Points/ (Rebate) Closing costs Total cost after 7 years    Loan with points 7.00% 1 $3,000 $58,881 Zero-point loan 7.25% 0 $2,000 $59,304 Zero-cost loan 7.75% (2) $0 $60,178 Even though you pay less up-front with a zero-cost loan, in the longterm, you pay more than a loan with points due to the higher interest rate. Why might my actual costs be higher (or lower) than the estimated costs I see here? Although we work very hard to give you an accurate estimate on your fees, your final closing costs may differ from our estimate due to the following reasons: Depending on your property, a lender may require a termite inspection (or other special inspection). If your property has a unique structure/design or it's difficult to determine its market value, your lender may require a more in-depth property value analysis, which costs more than a standard appraisal. Each state typically uses one of the following payment arrangements for the title insurance fee: a. the buyers pays the full fee           b. the buyer and seller split the fee c. the seller pays the full fee Our title insurance quote is based on the common fee structure in your state. However, our quote may be either over (or under) your actual cost if you and the seller decide on another fee arrangement. Some small fees, such as recording, notary or title fees, are based on the number of pages in your title/closing documents. Since we can't predict how many pages you'll have in your set of documents, we don't include these fees in our estimate. Back to top How do I pay for my appraisal? After you submit your online loan application, your loan consultant will contact you to request appraisal payment information. Back to top Can I borrow more money to cover closing costs? Yes. If your loan-to-value ratio isn't too high, lenders will usually allow you to increase your loan amount to cover your non-recurring closing costs and even some of your recurring costs—up to 1% of the property's value. What's the difference between non-recurring and recurring costs? Non-recurring costs are one-time costs associated with closing your loan. These include all the items in the first section of the Estimated closing costs page, including loan fees, appraisal and title fees, taxes, and points. Recurring costs, on the other hand, are payments you make periodically throughout the life of your loan, such as interest, property taxes, and hazard insurance. Your lender may require you to prepay some of these recurring costs at closing. These items appear in the Prepaid/deposits section of the Estimated closing costs page.

What are Points? A discount point? A rebate point? What's the relationship between the interest rate and points? What is a Zero-cost loan? What's a "zero-cost" loan? What are the benefits of a "zero-cost" refinance loan? What are the benefits of a "zero-cost" purchase loan? What's a "zero-point" loan? What are Third-party fees? Why might my actual costs be higher (or lower) than the estimated costs I see here? How do I pay for my appraisal? Can I borrow more money to cover closing costs? What's the difference between non-recurring and recurring costs? What's a discount point? A discount point is equal to 1% of your loan amount. You can choose to pay points up-front to lower your interest rate. For every point you pay, your rate will go down by about 0.25%. Back to top What's a rebate point? A rebate point is a credit from your lender equal to 1% of your loan amount. You can use this credit to cover your non-recurring closing costs, such as title insurance, appraisal and lender/broker fees, in exchange for a slightly higher interest rate. Please note that you can't get cash back from rebate points. Back to top What's the relationship between the interest rate and points? The interest rate and points have a seesaw relationship - the lower the interest rate, the more points that you pay up-front. And, vice-versa, the higher the rate, the fewer points you pay. Normally, you can choose from a variety of interest rate/point combinations for your loan amount and loan type. This gives you flexibility to get a loan that fits your needs. For example, you may want a loan with the lowest interest rate possible, while others may prefer a higher interest rate in order to reduce how much they pay out of pocket up-front. Before you decide on how many points to get, figure out how much you can afford to spend up-front, monthly and over the life of the loan. Back to top What's a "zero-cost" loan? A zero-cost loan has enough rebate points to cover all your estimated non-recurring closing costs in exchange for a higher interest rate. For example, you need one rebate point to cover $2,000 in closing costs for a $200,000 loan (1% x $200,000 = $2,000). However, you're still responsible for your recurring closing costs, which typically include the first 6 months of property taxes, the first 2 months of hazard insurance, and the first 2 months of mortgage insurance (if required). Back to top What are the benefits of a "zero-cost" refinance loan? Since you don't spend money up-front, you get immediate savings from a new loan with a lower interest rate and monthly payment than your current loan. For example, if you get a refinance loan at no cost, and your new monthly payment is $100 less than your current loan, you benefit from these savings right away. On the other hand, if you pay $1,200 in closing fees, it would take 12 months before you recoup these costs and begin to save ($1,200/$100 = 12). Keep in mind that a zero-cost loan makes sense if you stay in your home for the next one to three years. Any longer than that, you should consider paying points up-front to get the lowest rate, which will save you more money in the long run. Back to top What are the benefits of a "zero-cost" purchase loan? A zero-cost loan will help you free up some money for your down payment. If you have enough income to make the monthly mortgage payments, but you're strapped for cash to pay for closing costs, a zero-cost loan may be a good option. Again, you need to consider how long you plan to keep the loan. You can save money with a zero-cost loan, if you hold onto it for a short period. For example, if you buy a home to fix and sell next year, a zero-cost loan allows you to conserve money to use towards the renovations. Over time though, it often makes more sense to pay points to get a lower rate. Back to top What's a "zero-point" loan? A zero-point loan means that you don't pay any points (1 point equals 1% of your loan amount) in exchange for a lower interest rate. You still, however, need to pay for your non-recurring and recurring closing costs. A zero-point helps you qualify for a mortgage if you're short on cash. Similar to a zero-cost loan, you can save money if you plan to keep the loan for a short period of time. For example: Which loan saves you more money in the long run? $100,000 30 year fixed loan   Interest rate Points/ (Rebate) Closing costs Total cost after 7 years Loan with points 7.00% 1 $3,000 $58,881 Zero-point loan 7.25% 0 $2,000 $59,304 Zero-cost loan 7.75% (2)      $0 $60,178 Even though you pay less up-front with a zero-cost loan, in the longterm, you pay more than a loan with points due to the higher interest rate. Back to top Why might my actual costs be higher (or lower) than the estimated costs I see here? Although we work very hard to give you an accurate estimate on your fees, your final closing costs may differ from our estimate due to the following reasons: Depending on your property, a lender may require a termite inspection (or other special inspection). If your property has a unique structure/design or it's difficult to determine its market value, your lender may require a more in-depth property value analysis, which costs more than a standard appraisal. Each state typically uses one of the following payment arrangements for the title insurance fee: a. the buyers pays the full fee b. the buyer and seller split the fee c. the seller pays the full fee Our title insurance quote is based on the common fee structure in your state. However, our quote may be either over (or under) your actual cost if you and the seller decide on another fee arrangement. Some small fees, such as recording, notary or title fees, are based on the number of pages in your title/closing documents. Since we can't predict how many pages you'll have in your set of documents, we don't include these fees in our estimate. Back to top How do I pay for my appraisal? After you submit your online loan application, your loan consultant will contact you to request appraisal payment information. Back to top Can I borrow more money to cover closing costs? Yes. If your loan-to-value ratio isn't too high, lenders will usually allow you to increase your loan amount to cover your non-recurring closing costs and even some of your recurring costs—up to 1% of the property's value. Back to top What's the difference between non-recurring and recurring costs? Non-recurring costs are one-time costs associated with closing your loan. These include all the items in the first section of the Estimated closing costs page, including loan fees, appraisal and title fees, taxes, and points. Recurring costs, on the other hand, are payments you make periodically throughout the life of your loan, such as interest, property taxes, and hazard insurance. Your lender may require you to prepay some of these recurring costs at closing. These items appear in the Prepaid/deposits section of the Estimated closing costs page.