The mere mention of the words “closing costs” can send shivers up your spine and cause you to put your head between your legs and start sobbing.   No one likes to pay money, especially extra money and when you purchase or refinance a home you are already committing to the biggest financial cost of your life.  But, unfortunately just having the loan itself is not the only cost.  There are other expenses and other parties that are involved to make this happen.  Closing costs can be divided into four parts.

LENDER FEES:  These are the costs that you pay to obtain a loan.  If you are paying all cash you won’t have to worry and you can skip this topic.  Most of us are not that fortunate.

The lender is going to review your documentation and then prepare loan agreements for you to sign.  The property will get appraised and your credit will be checked.  Therefore, a processing, underwriting, appraisal and credit report fee are normal expenses.  The property may result in a change of title and therefore a new tax contract with the county.  That may lead to a tax service fee.  And then there are points or origination fees.  A point is equal to 1% of your loan amount so on a $200,000 loan a one point fee would be $2,000.  Points are really a buy down of the interest rate on your loan.  As an example your rate could be 4.5% with zero points or 4.25% with 1 point.   Points are interest and are tax deductible.

ESCROW/TITLE FEES:  These are the costs associated with the independent third party who handles the collection of documents, official payoff and recording and certifies that the property is exchanged between the buyer and seller. There will be a processing or escrow fee paid to handle this process.  There will also be a title insurance policy issued which verifies that as of the day of the closing the title is correctly vested without cloud to the party on the loan. This insurance policy is only good for the day of closing.  It’s an expensive but very necessary part to assure all parties that you have legal ownership to this property.  There will be recording fees with the county as the escrow/title company goes to the county office and stands in line to get the documents stamped.  There will be wire fees and overnight fees associated with the payoff of any existing loans as well as the new loan documents.  Whether you sign in an office or someone comes to your home there will be a notary charge.

RECURRING CHARGES: When you purchase a home you will have new expenses.  Insurance, taxes and loan payments.  When you close a loan transaction you will have some of these charges collected but they are not extra fees.  On a purchase, for example you may close on the 15^th of the month, but the new loan won’t begin until the 1^st of the following month.  Loan payments are paid in arrears which means the payment you make is for the previous month but since you are closing on the 15^th of the month you have to pay interest on the new money you are borrowing until the end of this month.  The same process holds true for taxes and insurance.

IMPOUNDS:  The lender wants to know that there is money to pay the property tax bill and insurance policy.  Some loans require this amount to be paid thru your payments and therefore an impound or holding account is established to have these funds available.  The lender will require you to fund this account with a reserve amount upfront. Depending on when the county tax bill is due you may have to advance anywhere between 2 and 7 months of your property tax payment. If you are paying mortgage insurance (MI or PMI) you may have to advance 2-4 months of this payment as well.

To discuss your confidential scenario please contact Mitch Lichterman Mitch@TargetRate.com or Click Here to schedule an online appointment

An appraisal is a valuation of a property based upon a specific date of that evaluation.  It provides an estimate of the market price of that property based upon what it would sell for in the marketplace on that specific date.

Appraisals are not perfect.  You could have 10 different licensed and quality appraisal companies each evaluate the property and you could get 10 different answers on the value.  An appraiser takes the complete information of that property and uses a comparative approach to obtain a valuation.

In coming up with a valuation they are actually not reviewing the house at all, but rather taking all the specifics of the house (bedrooms, bathroom, square footage, appeal, view, condition, etc.) and then comparing that to other houses in the current marketplace that already sold.

Therefore the value of YOUR home is really based on what other homes in the area have sold for recently.  This is called the Comparable Approach.  Here’s a copy of the most important page of an appraisal.

1. This shows the date of sale for the comparable properties. Usually no more than 90 days.
2. This shows the site square footage. Sometimes there is value for the land that the property is on. The appraiser adjusted the other properties value according to what he felt was the value difference of the lot.
3. This show the condition of the property and the opinion of the condition of our property compared to the other properties.
4. Probably the most significant comparison is the # of bedroom, bathroom and square footage.
5. If there are differences in the air conditioning or heating units they will adjust for.
6. Garage Square footage cannot be used for valuation but # of spaces and the quality of the garage can be used.
7. Final Value at $1,300,000 is the result of the adjustments on the other sales.

To discuss your confidential scenario please contact Mitch Lichterman Mitch@TargetRate.com or Click Here to schedule an online appointment

Is the recent Dow plunge a sign of things to come? Rates dropped from nearly 5% and settled back in the mid 4’s following the Memorial Day Holiday. Inventory remains low in most California markets and demand is higher than the availability.

At TargetRate we have seen an increase in requests for stated income loans. These are loans where a borrower’s reported tax returns are not used to qualify. We have two ways to analyze this type of transaction.

One is to simply go with the income that the borrower claims they make. The other is to add up all the bank deposits over the last 12-24 months and then use that average as the borrowers income.

Both options will require the borrower to accept a slightly higher interest rate than a typical 30 year fixed but they offer great options to help a borrower obtain the financing they need.

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Stated Income is back. Target Rate now has available new options for “stated” income type loans. To discuss your confidential scenario please contact Mitch Lichterman Mitch@TargetRate.com or Click Here to schedule an online appointment

The amount of home equity borrowers now have at their disposal reached an all-time high in the third quarter of 2017. Approximately 80 percent of homeowners now have tappable equity, cash which could fuel the economy. Under the new tax law, the interest paid on home equity lines of credit is no longer deductible.

The 42 million homeowners with mortgages have a collective $5.5 trillion in “tappable” equity, according to Black Knight Data & Analytics, which studies the mortgage industry. This is $3 trillion more than they had when the housing market last bottomed in 2012, after the financial crisis. Black Knight defines tappable equity as the amount available for homeowners to borrow before reaching 80 percent of debt to value against their home.

Following the housing crash, millions of borrowers fell underwater on their mortgages, owing more than their homes were worth. Fast-rising home prices over the last two years have brought borrowers above water and beyond. Approximately 80 percent of homeowners now have equity they can use, cash which could fuel the economy. Just 2.7 percent of borrowers, or about 1.36 million, still owe more on their mortgages than their homes are worth.
So….what do you do with all this equity?  How about purchase a 2nd home or rental property?

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Stated Income is back.   Target Rate now has available new options for “stated” income type loans. Contact me for more details.