Mortgage Fees Explained Part 2

Earlier, we talked about lender fees and third party fees.  Today, we’ll talk about mortgage fees, and other fees that aren’t covered in the three other categories, but are important for you to know.

Mortgage Fees

• Title Search -This fee is charged by your bank or lender and is sometimes called an underwriting, administration, or processing fee.  It’s designed to cover the costs of processing and evaluating a loan for you, such as legal costs, notary fees, and overhead.
• Title Insurance -Title insurance guards you and the lender against an error in the title search. If a previously-undiscovered problem pops up down the line, this policy protects the lender.  If you want to protect yourself, you will need to purchase an owner’s title insurance policy.
• Processing Fee -This is a fee the mortgage broker charges to compile paperwork and submit the loan on your behalf. Some companies charge this fee others do not.
• FHA, VA, and RHS fees - The Federal Housing Administration (FHA) offers insured mortgages and the Veterans Administration (VA) and the Rural Housing Service (RHS) offer mortgage guarantees. If you are getting a mortgage insured by the FHA or guaranteed by the VA or the RHS, you will have to pay FHA mortgage insurance premiums or VA or RHS guarantee fees.

Other Fees

Points – A point is 1% of the loan amount.  What that means to you is that points are a one-time charge that may be negotiated with the lender, usually to reduce the interest rate you pay over the life of your loan. For example, one point on a $100,000 loan would be $1,000. In some cases, especially in refinancing, points can be financed by adding them to the amount that you borrow. However, if you pay the points at settlement, they are deductible on your income taxes in the year they are paid.

Prepaid Interest – Your first regular mortgage payment is usually due about six to eight weeks after you settle (for example, if you settle in March, your first regular payment will be due on May 1, and this May payment covers the cost of borrowing the money for the month of April). Interest costs, however, start as soon as you settle. The lender will calculate how much interest you owe for the part of the month in which you settle (for example, if you settle on March 16, you would owe interest for 16 days–March 16 through 31).  The lender will want this up front.

Private Mortgage Insurance (PMI) – If your down payment is less than 20% of your home’s value, the lender may want you to purchase PMI to cover its losses in case you default on the payments.  Typically, you will pay a PMI monthly along with each month’s mortgage payment. Your PMI can be canceled at your request, in writing, when you reach 20% equity in your home based on your original purchase price if your mortgage payments are current and you have a good payment history. By federal law your PMI payments will automatically stop when you acquire 22% equity in your home based on the original appraised value of the house as long as your mortgage payments are current.

Flood Determination Fee – A fee the lender may charge to determine if your home is in a flood zone, and if you’ll need to buy flood insurance.

Homeowners’ Insurance – The insurance policy that protects against fire, vandalism, wind, natural disasters (other than floods), and other hazards that can damage your home.  Lenders require that you have this to protect their investment.  You should also consider looking into additional insurance to cover your furnishings and belongings.

Escrow (or reserve) funds – You may be asked to add in money at closing to put in an escrow account to cover property taxes, insurance, and other costs.  Even if you don’t pay this at closing, part of your monthly mortgage payment will probably go toward escrow.   When the bills for taxes and insurance come due, the lender takes the money out of escrow and pays them for you.

Conclusion

Be cautious of “bundled fees” if they don’t expressly mention what is bundled.  Some lenders offer a package deal that could be less then if you paid for all separately.  However, you want to be able to compare apples to apples when you’re shopping around.

If there are any fees listed you don’t understand, ask for an explanation.  Also realize that many fees, especially application and processing fees, are negotiable.  Ask your lender to reduce or waive these fees; alternatively, the seller may be willing to pay them.  Don’t be afraid to ask – after all, this is the biggest purchase you’ll ever make.

Tagged as: mortgage fees, settlement costs

Mortgage Fees Explained

Whether you’re a first timer or a re-financer, you want to know where your money is going.  When you’re signing all of the forms, a good loan officer recommends you read each page, but seeing all of those numbers can make your eyes cross.  Thankfully, mortgage paperwork has gotten simpler over the years, and fees can be grouped into a few categories.  Mortgage fees are also called settlement costs and vary quite a lot amongst lenders.

Lender Fees

These are fees asked for by the lender.

Application Fee – The fee charged by your bank or lender to apply for a loan used to cover initial processing costs and a credit check.  If they pull your credit report from all three bureaus, the fee will be higher.

Loan Origination Fee – This fee is designed to cover the costs of processing and evaluating a loan for you, such as legal costs, notary fees, and overhead. It’s sometimes called an underwriting, administration, or processing fee.

Third Party Fees

These are fees paid to third parties as part of the home purchase process.

Appraisal Fees - Lenders want to ensure to the best of their ability that the purchased property is worth at least as much as the loan amount. An appraisal fee pays for a determination of the value of the home and lot you want to purchase or refinance. Some lenders and brokers include the appraisal fee in the application fee.  Make certain that you ask for a copy of the appraisal. If you are refinancing or have had a recent appraisal of the property, some lenders may waive the requirement for a new one.

Home Inspection Fee – Your lender may require you to get a home inspection to check for major structural or other damage, water quality, leaks, etc.   The most common inspection is for termites.  In rural areas, there may be a test of the septic system as well as a quality test on the water supply. Even if it’s not required, a home inspection is a good idea for your peace of mind.  If nothing else, you’ll be able to plan when you will have to make investments into the property such as a new roof.

Property Survey Fee – Some lenders require a simple survey to confirm locations of boundaries and easements as well as the location of buildings and improvements.  If there are questions as to the legality of these issues, such as a boundary line dispute with neighbors, the lender will require a complete, and more costly, survey.

Tomorrow, we’ll finish up with Mortgage Fees and Other Fees.  Are there any fees that you’re curious about?

Tagged as: mortgage fees, settlement costs

Preparing Your Yard for Winter

Welcome to part 3 of our 4 part series on preparing your home for winter. Here in the Great Northwest, need to prepare for frost, ice, snow and heavy rains. Some meteorologists are predicting that we’ll be getting an El Nino year. So the good news is it will be a warmer winter (unless you enjoy snow sports), but the bad news is that we will get more rain which could also be considered good news since we would be filling up our reservoirs and aquifers.

So here’s what you can do to get your yard ready for frost and heavy rains:

Remove Debris

First things first, you need to remove the debris before winter arrives including leaves, rocks, sticks, trash, and dead flowers. This will keep your yard and flowerbeds looking nice throughout the fall and winter months, as well as reducing the amount of yard work you will need to do in the spring.

Bushes

Roses, azaleas, and hibiscus will need to be protected against the cold weather. You can get creative with cardboard or garbage bags if you know there is a frost warning. Make certain you hold the cover down in place with stakes, bricks or heavy rocks.

Add mulch around the roots, but make sure it doesn’t touch the base of the plant. Give the plants a good watering before you turn off your sprinklers.

Trees

While the weather is still pleasant, put mulch around the base of the trees to help the tree retain water in the roots, and keep the soil at a steady temperature. This also cuts down on the weeds you will have to pull in the spring.

Mulch can be bark chippings, straw, pine needles, or a mixture of things. You can get free chippings by contacting your local tree removers and asking if they’ll drop off some mulch. But be aware that they may have a minimum amount that they drop off.

In a few weeks, you will want to trim your trees, bushes and roses. But, don’t prune now because the buds that will open in the spring have already formed, and you might clip them off accidentally. So what should you trim? Snip off unhealthy or dead sections, and trim off dead flowers.

Also, check to see if branches are close to your house. If they are, trim them back as you don’t want them banging against the house during strong winds.

Garden

If you have strawberry plants, they should be covered with layers of straw to keep them protected from getting frostbitten. Plant those bulbs now before the ground gets too hard to dig. You will be well rewarded in the Spring.

You can pull out your summer vegetable garden, or you can leave it to overwinter and see what pops up in the spring.

Consider planting a few cold weather flowers to brighten up your garden.

Sprinklers

If you know you’re not going to turn on your sprinklers at all during the winter, then drain them of any water. You would turn off the water supply going to the sprinklers, and then open the drains including the backflow to get all of the water out. Leave the drains open for several hours to ensure it’s completely drained. You can remove the sprinkler heads to allow the water to drain more easily, and you can hook up an air compressor to blow air through the system. Make certain that you’ve set the controller to Off or Rain.

If you’d like more detailed information, check out Irrigation Tutorials’s winterizing directions. There are detailed instructions for both temperate and cold weather.

Hoses

Make sure your hoses are drained completely, roll them up, and store them away in a shed or garage. Keeping them out of the elements will also prolong the life of the hose.

When do you expect the frost to hit in your area?

If you missed the other two blogs in our series, you can find them here:
Part 1: Fall Maintenance, Top to Bottom
Part 2: Storing Your Outdoor Items for Winter

Spotting Hidden Problems in Older Homes

Are you looking into buying an older home? If so, grab your camera and a flashlight before you look. Home inspections can be very good at identifying problems. Nothing beats taking a close look yourself before you have the money spent on an inspection.

Two big and obvious problems

In this article on spotting hidden problems, the author focuses on the problem:

Problems in older homes are often well hidden. More often than not, serious damage doesn’t show any symptoms until the damage is significant and expensive.

There are clues, but even trained eyes sometimes have difficulty telling normal wear and tear from the signs of serious underlying problems.

Most old-home problems, however, have predictable causes and if you know where to look you can find hints that might lead you to discover concealed damage.

You’ll want to read the article. The author felt that the two major problems are:

1. Water damage from where the home settled and water pooled
2. Outdated electrical system being overused in our modern age

If you find a home that needs new wiring, or water damage repair, you will want to weigh that against the cost of the home.

6 Signs it could be a lemon

MSN had a great list of the 6 signs that the house could be a lemon as well as details on the signs (how to know what you’re looking at), and how much it could cost to fix.

The article also brought up aging roofs, foundation cracks, failed sidings, and sticky doors and windows, but one that we thought was interesting was on sloping floors.
Sloping floors
Sloping floors are not uncommon in older homes, especially turn-of-the-century houses. “I’ve seen houses with as much as five inches difference from one side of the house to the other,” Balin says. Don’t let a seller pass the problem on to you, because it’ll cost you when it’s your turn to sell. “You think it’s not going to make a difference in the price of the house?” Balin says. “Of course it will.”

A sloping floor may signal weakness in the home’s supporting structures. But that’s not always the case, Juneau says. Sometimes it’s just the result of an imperfect repair. In replacing floor joists, for example, the floor may not have been correctly re-leveled.

Signs of trouble

• Look at the house from the street. Is everything — the front entrance, the windows, outside doors, foundation and walls — straight and square?
• Place your marble or level on the floor. Does it roll to one wall? Does your carpenter’s level indicate a subtle tilt?
• Notice how the floor feels beneath your feet: Humps beneath doorways and bounce can indicate failing supports.
• Be alert to ridges under a carpet. In a house with a slab-on-grade foundation, irregularities in the floor may be your clue to a crack or break in the slab.
The fixes
As with leaks, different causes will require different types of repairs. For example:

• A rotten or damaged floor joist can cause the floor to slant. Repairs may run as little as $300 or as much as tens of thousands of dollars, depending on the scope.
• A cracked concrete slab is repaired by drilling holes and injecting concrete. It’s called “slab jacking” and it typically costs several thousand dollars.
• Re-leveling a floor over a crawl space involves slowly lifting the house and making the support beams level. Costs start at about $3,000.

Mold and Mildew

Additionally, MSN detailed mold and water stains. You may smell it as soon as you walk in or head to a corner. Don’t be afraid to gently poke at a wall to see if it feels squishy. Black mold could be very expensive to clean up, and might impact your homeowner’s insurance.
Mold and water stains on ceilings and walls
The cause of mold and rot is simple: Water got in where it shouldn’t have. The pros call it “moisture penetration.” The longer it’s there, the more damage it creates.

Signs of trouble

• When touring a home, use your nose. If you encounter moldy or dank smells, politely ask the agent or owner about its origin.
• Check walls and ceilings — particularly under bathrooms and kitchens — for water stains, mold and mushy drywall.
• Check for signs of repairs or remodeling by holding your flashlight parallel to the wall or ceiling. The light casts shadows on every irregularity, repair, patches and a telltale difference in surface sheen. Start at the highest point and work your way down all interior walls. Do the same with the ceiling.
• Inquire about repairs. They are fine if done well. Ask what went wrong, what exactly was done to fix it and when. Satisfy yourself and the experts helping you that the problem was fixed adequately. Ask to see any documentation available.
The fix

• Fixing a leak may involve only replacing a missing piece of flashing. Cost: $10 to $20.
• The same leak, left undetected, can result in a nightmare of rot and mold. “I’ve seen homes where you have to take off the siding all the way around and strip the house down to its bones,” Balin says. Cost: As much as $100,000.

It’s better to identify the problems before you buy, and cheaper to identify major problems before spending time and money on inspections.

Have you ever decided against a house because of a major problem?

Tagged as: home inspection, warning signs, water damage

Rental Property As Retirement Income

Is now a good time to invest in property for passive income when you retire?  And is it even a good idea for you?

Look before you leap

The Chicago Tribune had an interesting analysis back in May that counseled that loan requirements have changed dramatically over the last 5 years, and that the investor must have realistic expectations with the focus on long-term rather then flipping.  Purchasing an investment property as a rental can provide you with a steady stream of income.  There are still tax benefits with real estate investments, and you should talk to a professional to find out how it would impact your situation.

Real estate investments also mean that you will be a landlord, and either you need to handle finding tenants and repairs, or you need to hire a management company which will reduce your profits.  But you get to sleep through the night if a pipe bursts or the tenant gets locked out.

How much income?

Rents are set by where you live.  Usually, rents will go up, but the costs involved with owning the rental property will stay fairly flat especially if you choose a fixed rate mortgage.  Some investors clear $200-1000/month for one rental home.

Some landlords will increase rents every year or two, while others increase only when changing tenants.  If your mortgage stays the same, your income will increase over the years.

There will always be people looking for rentals.  If you have a clean home in a safe neighborhood, people will pay to rent it providing you with a passive income stream.

What should I be aware of?

Renters can leave with two weeks notice, and in some cycles, it’s difficult to replace them.  Always keep six months of expenses on hand per property so you’re not caught needing to sell the investment in a down market.

Always hire an inspector to rule out any large repairs such as foundation, roof or structure of the home.

Research monthly costs.

Talk to your Realtor® about comparable home sale prices in that area to have a good understanding of your investment.

Investopedia has a great article on Tips for the Prospective Landlord. One of the best tips is to ensure your leases are legal as this could have a long term impact if you end up with a bad tenant.  Also, the tip to join the Landlord’s Association in your area is helpful as you will learn a lot from seasoned investors.

What should I look for?

Look for a larger property in case you want to renovate or add on.

Single-family homes in a good school district rent more easily.

Look for properties that can generate positive cash flow of at least 6% above costs.

If you’re new to investing, consider purchasing properties close to where you live to keep tabs on the investment even if you use a property management company.  When you’re comfortable, consider looking into purchasing properties where you wish to retire.

 So, to sum up…

Talk to a tax advisor to understand any tax implications rental property will have.  Find a reputable Realtor® and call your mortgage broker to find the best options for you.

To read more about things to look for and how to plan, read The income property: Your late-in-life retirement plan on Yahoo. The more knowledge you  have, the easier the process will be.

Have you purchased an income generating property or are you looking into one?

Now Cheaper To Buy Than To Rent

It is now considerably cheaper to own a home than to rent that same home, something unheard of since 2008.

This and other promising information about the housing market was recently released by Harvard in their annual “State of the Nation’s Housing,” an in-depth study performed by The Joint Center for Housing Studies at Harvard University.

Because of historically low mortgage rates and low home prices post-recession, it is a perfect time to buy.

On the other hand, rent prices are soaring, especially in the Bay Area. According to Trulia, San Francisco and Oakland saw the biggest jumps in rent in the United States over the last year, with increases of 14.7 percent and 11.2 percent, respectively.

“With rents up, home prices sharply down, and mortgage interest rates at record lows, mortgage costs relative to monthly rents haven’t been this favorable since the early 1970s,” said Eric S. Belsky, managing director for the Joint Center for Housing Studies at Harvard.

The report also noted that today, mortgage payments for the median priced US home are roughly half of what they were in 1990. The study showed that mortgage payments are now 23% less than rent payments for the median priced home.

This means that it is a fantastic time to be a home buyer, and to get off of the fence if you’ve been waiting for the market to turn around.

Take a look at the entire Harvard study here:

http://www.jchs.harvard.edu/research/state_nations_housing.

May 7th to 11th Market Commentary

There are only three pieces of relevant economic data scheduled for release this week that may affect mortgage rates, in addition to two important Treasury auctions. The two most important reports will be posted Friday, meaning the markets will have to rely on factors other than economic news for direction most of the week.

There is no relevant economic data due until Thursday, so expect the stock markets to be a big influence on bond trading and mortgage rates until then.

The Treasury will hold a 10-year Note sale Wednesday and a 30-year Bond sale Thursday. Results of the auctions will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sale, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons.

March’s Goods and Services Trade Balance report will be released early Thursday morning. This report gives us the size of the U.S. trade deficit but likely will not have much of an impact on the bond market or mortgage pricing. It is expected to show a $49.9 billion trade deficit, but it is the least important of this week’s data and likely will have little influence on Thursday’s mortgage rates.

Friday has the remaining two reports. April’s Producer Price Index (PPI) is the first at 8:30 AM ET. It helps us measure inflationary pressures at the producer level of the economy. If this report reveals weaker than expected readings, indicating inflation is not a concern at the producer level, we should see the bond market rally. The overall index is expected to show no change, while the core data that excludes more volatile food and energy prices has been forecasted to rise 0.2%. A decline in the core data would be ideal for mortgage shoppers because inflation is the number one nemesis for long-term securities such as mortgage-related bonds.

The last report of the week is May’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment. This index measures consumer willingness to spend, which relates to consumer spending. If consumers are more confident of their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 76.2, which would be a small decline from last month’s final reading. If it shows a large decline in consumer confidence, bond prices could rise and mortgage rates would move slightly lower because waning confidence means consumers are less apt to make a large purchase in the near future. That is assuming the PPI does not give us a significant surprise though. The PPI is much more important to the bond market than the sentiment index is, so look for it to be the biggest influence on Friday’s mortgage pricing.

Overall, it likely will be a moderately active week for mortgage rates. Besides the week’s economic news, look for the stock markets to be a major influence on trading. The most important day of the week is Friday with the PPI report on the agenda, but Wednesday’s 10-year Note auction could also heavily sway bond trading. It appears we will likely see the most movement in mortgage rates the latter part of the week unless the stock markets post sizable gains or losses the first part.