Chapter 2

KNOW YOUR MORTGAGE

Federal Housing Administration (FHA) Loans

Hidden Costs of Buying a Home

Most loans have fees in addition to the total amount you are borrowing to finance your home. You can sometimes borrow the money needed to cover these fees, but that will obviously increase the overall amount of debt you undertake. Some fees are paid up front, and others are not due until closing.

 

Points

 

The lender or broker can charge you points on your mortgage. One point equals 1 percent of the loan amount. These are simply fees paid to the lender or broker that are often linked to the interest rate, and are usually paid in cash to the lender or broker at closing. A lender may offer you a lower interest rate, but charge more points, so it's important to compare offers.

 

Loan Origination Fees

 

The institution that actually loans you the money will generally charge on origination fee for processing the loan. They are often expressed as a percentage of the amount of the loan.

 

Underwriting Fees

 

Certain lenders will charge a fee to investigate your creditworthiness and determine if you are likely to repay your loan.

 

Broker Fees

 

Typically paid at closing, a mortgage broker may charge you a fee in addition to the origination fee. If you are working with a broker, be sure to check with them what their fee is.

 

Transaction / Settlement / Closing Costs

 

These fees lump together several charges for: application fees, title examination, abstract of title, title insurance, property survey fees, deed preparing fees, other mortgage fees and settlement documents, attorney fees, recording fees, notary fees, appraisal fees and credit report fees.

Never hesitate to question a fee that you don't understand. Your lender should give you a thorough explanation and make sure that you know what you're paying for.

Certain fees, like the broker's fee or the amount of points assessed on a loan are negotiable. It never hurts to ask your leader if they can get you a better deal.

In order to empower consumers with the information necessary to make informed buying decisions, government regulations require lenders to provide two forms to borrowers on the loans for which they are applying. The first form must be submitted to you within three days of submitting a loan application to a lender and this is called the Loan Estimate. This form explains key features, costs, and the risks associated with your selected mortgage. The second form is provided no later than 3 days before your scheduled closing and is called the Closing Disclosure form. This form details all costs associated with your purchasing transaction. If you have any questions or concerns about your loan when you review these documents, be sure to ask them right away.

Chapter 2 Page 6

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