Ok, I have spoken with a loan officer about our situation: husband has major dings on his credit report because ex did not refinance the house out of his name and it was just sold through a court-ordered short sale. We've repaired his credit to the mid 600s. In our area, houses that fit our needs (us, a child and a disabled mother in law coming to live) seem to be around 300-325K, always the possibility that we could snag a forclosure or a handyman special for less but I don't want to count on that.
Our debt to income ratio approves us for more than we need (we have zero car loans, zero credit card debt, and his only debt is child support to his ex, less than 2 years on that left), the issue I am feeling overwhelmed with is closing costs.
We currently as of this minute have about $12,500 in cash. In the next 6 months (tax returns, his recent salary increase + another one expected in March, and perhaps with a few generous "gifts"), we could potentially double that amount. Loan officer has thrown out the number of $22K for closing costs on a 300K house. 10.5K for 3.5% down and the rest are closing costs. Loan office says of course they need to run credit reports and take to her underwriters, but with the court documentation to back up "extenuating circumstances" she believes it can be approved as is.
My question is, I know there are ways to cut closing costs, I know there are loans that require no money at closing, etc. Should I be asking about a different kind of loan? I am concerned that laying out that kind of cash will strap us in the short term should any emergencies or repairs needed come up. Are there questions I should be asking, or should I be talking to other loan officers for comparison?
I do not want everyone pulling our credit and putting dings on it, I'm just confused about it all right now. We do NEED to find a place - our landlords informed us that the siblings want to sell the property, so we have ustil next May at the earliest, summer at the lastest to find something and I would hate to move into another rental (which would be more expensive due to MIL's needs) which would just eat into our savings ability. Now seems like the best time to buy, I just need to get this all in straight in my head so I am not just going with the first person I deal with and it end up being the worst deal. I also don't know where to find "reputable brokers" - the one I am speaking to was a referral, and I don't want to go down a rabbit hole of shady dealers I googled the names of.
Help give me some direction?
Did the LO give you a closing costs worksheet that itemizes each charge? If not, s/he should be able to give you one without pulling your credit at all.
"Closing costs" is a general term usually used to describe both one time costs due at closing and pre-paid expenses including impounds.
There are three sources to obtain the funding for your closing costs:
You can obtain these funds as a gift from family members or sell items around the house to gather up additional funds. You would need to either season the funds for longer than 60 days in your account or show the source of the funds (especially if you receive gift funds).
If you haven't purchased your home yet, you could have the seller pay some or all of your closing costs. It is a point of negotiation. In some markets it is easier to obtain than in other markets. Right now in my market it is more of a sellers market so many of the sellers do not want to pay any portion of the buyers closing costs because they have substantial costs of their own to pay at closing.
The lender can pay some of your costs too, but in order to do so, the lender bumps up the interest rate to obtain the necessary funds to pay for your loan fees. That means you are paying more interest every month. Sometimes this is an excellent option, sometimes the cost is not worth it. You have to work the figures for yourself.
Some buyers do a combination of all 3 above: some from the seller, some from the lender and they pay the balance. It always costs money to borrow funds from an institutional lender (bank, cu etc). Those lenders that advertise "no closing costs" are bumping up the rate. What they aren't telling you in the ad is that you still have to come to the table with funding for your escrows/impound account.
I have asked the for a breakdown and now I am just waiting for her to get back to me.
We have not purchased or even bid on anything, we are still making sure we have all our ducks in a row, as they say. It sounds like there is room for negotiation here, so I thank you for your explanation, that's extremely helpful.
I just bought a home for right around $300K, and down payment + closing costs for me ended up being just shy of $15,000. Now, you may have higher or lower property taxes than I do, so it's not an apple-to-apples comparison, but $22K seems a little high.
That said, I had at one time seeked pre-approval from Quicken who quoted me $22-24K. I quickly decided to look elsewhere. Have you asked for a quote from other lenders?
EDIT: Forgot to clarify, but if multiple mortgage lenders all pull your score within a short time frame (2 weeks seems to be a safe window), all the inquiries count as ONE for scoring purposes. In other words, you needn't worry about it hurthing your scores.
I have only been in contact with this one broker. I do want to speak to others as well, especially if you say you found much more reasonable cash outlay. Property taxes around here run 7-9k on the houses we are looking at, so that indeed may be the issue.
What did you do to find a broker you were comfortable with?
look for a mortgage banker not a broker.
Any advice on reputable mortgage bankers?
I received the breakdown from the LO and I don't understand at least a third of what I am looking at, will need to print it out and research line by line whether it's a non-negotiable, negotiable or junk fee. Sigh.
Estimate of Closing Costs: Product Details: FHA
Mortgage Application $415/Commitment Fee $425 (pd @ closing)$ 840
Tax Service $80, Flood $8, Credit $25 (pd @ closing) $ 113
Appraisal (paid up front when appraisal is ordered so not included in final closing costs) $400
Appraisal Review $250 (Must be disclosed-charged at closing only if required by appraiser or new construction) APR
Estimate of Your Attorney Fees (paid at closing):
Attorney Fee $ 1,000
Recording Fee (Mortgage, Deed, Notice of Settlement) $ 400
Survey - we do not require this but your title company may require one$ 450
Title Insurance $ 1,588
Title Exams, Searches and Endorsements, Wires, misc attorney fees$ 600
(Your attorney fees are determined by your attorney and title company - these are my ESTIMATES)
Total $ 4,991
15 Days Interest (paid at closing):* $ 493
1 year Home Insurance (pre-paid before closing so not added into costs due at1200 closing) (e)
3 Months Home Insurance Escrow (paid at closing) $ 300 (e)
5 Months Tax Escrow (includes prorated taxes due to seller if applicable) $ 3,750 (e)
Total $ 4,543
Estimate of Investment Required:
Total Estimated Closing Costs & PrePaids $ 9,534
Interest Rate (rates change daily) 3.500%
Discount Points 0
Loan Term (mos) 360
Total Loan to Value 96.5%
$ - Details of Purchase:
Sales Price: $ 350,000
First Mortgage Amount $ 337,750
FHA UFMIP $ 5,911
Total loan amount include UPFMIP $ 343,661
Down Payment $ 12,250
P&I Payment $ 1,543
Taxes (est $9K/yr) $ 750
Home Insurance (est $1200/yr) $ 100
PMI $ 387
Total Monthly Mortgage Payment $ 2,780
Qualification:Base Salary $ 7,750 $93K Salary
$ 1,000 Child Support
Monthly Debts $ 625 Credit Cards, his C/S (no HELOC paymt)
Debt to Income (max DTI 45%) 31.77%
Total Estimated Closing Cash (net of insur./appr):$ 21,784 (doesn't include appraisal and insurance prepaid)
Total Estimated Cash needed to purchase $ 23,384 (includes appraisal and insurance costs)
* used highest rate with highest loan size for middle # of days - if you close near the end of the month, this amount will go down, if you close in the beginning, it will go up.
(e) = estimated property taxes $7000/yr and Home Insurance of $1200/yr
If anything looks strange or out of place, please ask, I was copy/pasting but the document was in landscape so I had to cut and paste a lot of stuff to rearrange it. Thank you for offering to review it.