Closing Costs: What to Expect When You Get Your First Loan Estimate

hey kyle here with winthehouseylove.com in this video we're going to walk through a loan estimate so you can understand your loan a little bit better so someone on reddit said thoughts on the loan estimate need help understanding thank you in advance and they added their loan estimate pictures here so i'm going to walk you through how to read this loan estimate and see if it's a good deal or not a loan estimate is a document you're legally required to get from your lender within three days of being under contract on a home and it's going to tell you all the details of your loan and give you other disclosures to help you understand your loan a little bit better please read through them that's why the documents are there a lot of people don't read through them so let's go through these numbers really quickly i'll have a link to the reddit post in the description that you can look through this with me if you'd like to so we can first see here um properties blanked out which is good we don't want to share this information uh but i don't know what state they're in and the state can really change a lot of um the quotes that you will get and i will make one quick note before we dive into this you can shop with multiple lenders when you're under contract and when you're looking getting a pre-approval to make sure you're getting the best deal at the pre-approval stage you're likely getting quotes from lenders and when you're under contract so you've had an accepted offer on your home from the seller you can talk with multiple lenders to find the best loan estimate for a loan and then i've built a software called the loan clarity advisor link is in the description that will help you compare these loan estimates side by side to find which one is the best one for you so let's walk through this uh we can see the purchase price is 447 thousand three hundred and thirty dollars here they have a rate lock now this is really important with loan estimates um because a lot of times you'll get a loan estimate and it will say it is not locked and the way a rate lock works is if your rate is locked it means that the interest rate you get will not change up until closing and then if you have a fixed loan it will never change for the life of the loan okay so there's kind of four different terms you need to know there's two before closing and two after closing the two before closing are locked and floating and after closing it's fixed and adjustable most people are getting a fixed rate loan so that means after closing the rate never changes if you have an adjustable loan then that means after closing the rate can change now before closing you can have locked or floating locked means it will not change floating means it changes with the market until closing okay i know it can be a little confusing but basically what happens is if this said rate lock no that means that the quote that you get can change up until closing so if rates go up you could have a higher rate for the rest of your loan if it's locked that means it will not change until the closing date okay so we can see that they have a rate lock yes until 10 19. now this is really far in the future the the date of this post was uh let's see six days ago and it's june 26 right now so they have an extremely long rate lock which isn't needed this may be new construction or something along that lines if they're having such a long lock if you don't need a lock that long don't do it the longer your lock is the more expensive the costs are going to be on the loan so the shorter lock is always better and when you're comparing loans you really want to make sure um that you understand if your rate is floating or it's locked okay just to make sure you know what can and can't change here's the loan amount so four two four nine six three you can very easily double check your down payment by taking the sale price minus the loan amount so we have 22367 divide that by the loan amount nine six i'm sorry divide that by the purchase price and we can see they're putting five percent down okay interest rate is a five point five percent uh monthly principal and interest is 2 412 dollars and 90 cents this is not your total payment this is just the principal and interest you'll also be paying things like any mortgage insurance taxes homeowners insurance and homeowners association fees if you have any so it's important to keep that in mind um over here on this section it's going to say can these increase after closing and these all say no so this is a fixed loan it cannot change in its interest rate meaning the monthly principal and interest won't change either now a lot of people here then are wondering is this a good interest rate there's a couple ways we can check this i like to check it both online and then with multiple lenders so i'll show you how to check it online in a second what you want to do though is shop with multiple lenders and all that is is you're just applying with multiple lenders and getting their loan estimates to see which is the best deal if you want to be connected with a helpful loan officer who makes videos just like i do i've connected with find my way home which is a network of loan officers in the us that are extremely helpful and can guide you through this process i have a link in the description if you're interested um and then for checking online i like using the cfpb rate checker so you can just google cfpb rate checker and we're going to go to this one explore interest rates and this is an a website tool from the cfpb all you do is put in your scenario and it's going to show you the average rates based on their scenario so um i'm just gonna do ohio because they didn't have a state here we're at four four seven three thirty as our purchase price five percent down this is a fixed 30-year conventional loan so we can see the average is below six percent um so this person was getting quoted a 5.5 which seems pretty average 6.25 is actually more common but there's a pretty wide spread so basically what i'm wanting to see here is if i if this person was quoted a 6.5 this is when i'd really make sure i wanted to shop around since this person is on the left all the way on the left of the list this is a pretty solid interest rate so far now we want to look at the associated costs with that here in just a second okay then we have the payment so this is showing us in years 1 through 11. principal and interest again this is that same number here mortgage insurance sixty seven dollars mortgage insurance is if you put less than twenty percent down on a conventional loan it protects the lender in case you don't make your payments um sixty seven dollars seems pretty low not super out of the ordinary but it is low i would just double check that with the loan officer estimated escrow it looks like escrow doesn't exist on here escrow is where the lender is actually going to pay your taxes and insurance on your behalf because taxes are usually paid semi-annually twice a year and homeowners insurance is usually paid annually once a year so instead of you getting a surprise bill two times during the year or once during the year the lender will collect a monthly payment from you and then make those payments to insurance and taxes on your behalf usually most lenders don't allow you to waive escrows unless you have twenty percent down some will allow it at five percent what i would want to do is double check with my lender and say hey i see that escrows aren't being collected can you just confirm that escrows are being waived on this even though i'm putting five percent down because we don't want them to just not include it and then we get a surprise on the other side okay that is something to keep in mind is that even though the lender is going to collect this number from you per month estimated total monthly payment they're going to collect this every single month from you you're also going to need to still plan for taxes and insurance or homeowners association fees if you have it okay you have to keep that in mind just because the lender is collecting this doesn't mean that's the only payments you're going to have to be making all right now in year 12 mortgage insurance falls off because this person hit 22 equity at 20 equity they could actually request the mortgage insurance come off but then their payment lowers to 24 12 90. so we can see here uh estimated taxes insurance and assessments uh 255 per month now this seems really low for a 450 000 property 255 that's supposed to include taxes and homeowners insurance seems extremely low i would want to double check this with my lender and likely what's happening is this looks like a new construction possibly what happens with new construction is the tax bill only shows the taxes on the land and not on constructed property so just keep that in mind because a lot of people buy a new construction home thinking their taxes are really low and then their taxes skyrocket once there is a home built so have that prepared have that conversation with your real estate agent and with your lender you can look at tax bills of homes that are already constructed nearby to get an estimate of those taxes but please keep that in mind so you don't get into hot water you don't need an extra 300 added to your payment that you weren't expecting here and we can see on the right that says in escrow no okay so the lender is not collecting this this means that this person is responsible for paying the taxes and the homeowner's insurance bill when it comes due okay so they need to budget that money to make sure they have that um this section here is a summary i don't think it's super helpful because it's going to explain all these numbers on page two of the loan estimate and all loan estimates are going to look the same no matter which lender you get them from so section a is origination charges this is the lender's charges the direct cost of getting a loan through this lender now this is what's interesting is i saw this in the comments people were talking about the broker compensation is extremely high and at first glance it looks extremely high this is two percent of the loan amount um and so there's two different types of compensation from lenders there's lender paid and there's uh borrower paid compensation i don't want to get into the details of it they're basically the exact same as just who is what's being disclosed how's it being disclosed um so here it looks like 8 500 is the cost however this person is receiving a lender credit to offset it okay unfortunately loan estimates are made is this just it can be a confusing thing to look at but if you're seeing this on your loan estimate you're paying broker compensation and a lender credit we kind of have to subtract them to find the true cost of the origination charge so we would take 8499-3162 this person is actually paying closer to 5337 in broker compensation five three three seven now the way i like to think of this i think it's helpful when you're shopping loans is think of this compensation just as like an appoint uh an inter a prepaid interest point well i like to think about it as prepaid interest think of it like a point here because you can actually get more of a credit by increasing your interest rate or the opposite by lowering your interest rate okay so we can take this amount in cost and divide it by our loan amount to actually see what would this be as a point cost this is about 1.25 of the loan amount so then when you're shopping with other lenders you would want to see if you could get a better interest rate at that same point cost so you can go to another lender if i was this person i go to another lender and say could you show me what interest rate i could get with 1.25 and points um and zero lender fees you're basically wanting this section to equal 53.37 across the board so you can find what the interest rate would be between all the lenders otherwise what ends up happening is you get one lender who says here's a rate and this is the cost and another one says this is the rate and this is the cost and they're all different and it's hard to compare so having them all have the same origination cost allows you to compare the interest rate on its own okay i also have a software that does this it's the loan clarity advisor where you don't have to go have each lender do that you can just plug in all the numbers and it will show you which one is the best option that link is in the description if you would like it um okay so now let's dive down everything else is a little less complex uh appraisal fee 720 uh in a more competitive market this seems pretty fair uh all of these are very common these are going to be charges associated with the loan things like the credit report flood determination fee flood life of loan coverage life of loan tax service and a mers registration fee these are common on almost all loans section c these are going to be services you get to shop for you actually get to choose in most instances the title company that you're going to use and this all looks very standard but you can shop this if you want to there's very little cost differences between different title companies so down here this adds up this section then over here section e these are the taxes and recording fees you're going to be paying looks like recording fees 90 this is going to depend on the county that you're in seems a little low around here it's about 200 225-ish transfer taxes in ohio there's no transfer taxes the buyer has to pay but in your area this may be different some states the buyer pays all the transfer taxes uh in ohio the seller pays the transfer taxes and this is really just going to depend on where you're located at for some people this can be multiple thousands of dollars for this person it was about a thousand um section f uh 12 months of homeowners insurance is paid on every loan this looks great prepaid interest this looks normal as well this is from the time that you close until your first payment is due you're paying interest on your loan again there was no escrow if there was escrow there would be a few months of insurance and taxes collected here which would increase the closing costs and then section h this is an optional owner's title policy this is offered by your title company so loan estimates are so confusing even though it says other and it is optional it's part of title which i wish it would be in this section to make more sense but it's not welcome to the wonderful world of real estate so this sums up these other costs then we take the total down here minus that lender credit which offsets this broker compensation okay now before we calculate this cash to close one thing to note is when you get a loan estimate the nice thing about getting a loan estimate is there is a obligation that the lender has to follow this loan estimate okay one thing to note about these costs and if they can change the nice thing about a loan estimate is that there are rules about what can and cannot change when you get this loan estimate from a lender meaning they can't just say here's the cost and then it increases in the future so section a everything in here and section b is not allowed to increase once you see this number it is not allowed to go up it can only go down if it goes up the lender is the one responsible for the cost of it in section c since you're allowed to shop for this there is no rule around it it can increase because you're the one choosing the title company okay so the nice thing about getting a loan estimate there are rules to what can and cannot change when you get this document meaning that the lender can't just say it's going to cost this much and then you get to the closing table and it's double okay there are rules about what can change with these fees so section a and b are not allowed to increase and there's a thing in the mortgage world called a tolerance meaning how much did the final cost change from the estimate so section a and b are zero tolerance meaning these cannot increase if these increase the lender has to cover the cost so if the appraisal fee comes in at a thousand dollars you are not allowed to pay the difference the lender has to cover the difference section c um is an unlimited tolerance because it's something you can shop for you're choosing the title company so this is the lender's best guess on what the title cost would be okay since you get to shop for it the lender is not responsible if it comes in higher the only exception to this is if the lender the lender has to give you a list of title companies when they give you these documents if you choose a title company that's on that list then they're going to be held to a 10 tolerance meaning it can't increase more than 10 percent of what they quoted you here okay um i know it's a little confusing section e is a 10 tolerance as well meaning it can't increase more than 10 percent if it does the lender has to cover it section f g and h do not have a tolerance to them these have to be in good faith the loan officer is going to estimate these for you however these can change for instance homeowners insurance the lender is going to do their best job to estimate what your homeowners insurance is going to be but they're not a homeowner's insurance company you're going to shop for homeowners insurance and things change like you know if you have 15 rottweilers your insurance is going to be higher than the loan officer probably thought it was um so that's important to keep in mind these are estimates not quotes sometimes i've had people who are like you quoted 960 but it came in at 1200 why did you increase my insurance like i didn't you shopped for insurance and that was the quote that you got and you told me about it we had to estimate a best guess of what your insurance would be um this is not my lone assembly just heads up so these all have an unlimited tolerance meaning they can change all right so now what we do is we calculate the cash to close we take all these numbers and try to make them make sense into a bottom line number so we take the total closing costs minus any amount financed in this case is a conventional loan that doesn't have that if you have something like an fha loan or va loan or usda loan often the upfront mortgage insurance is going to be included here here's our down payment so closing costs plus the down payment minus the earnest my deposit this person put 7 500 as an earnest money deposit or an escrow deposit on their contract meaning that they're going to hold that uh a third party is going to hold that uh kind of as good faith that they're going to follow through on their offer there's no funds for the borrower no seller credits and no other credits so for adjustments and other credits what's often included in here is taxparation so the way tax probation works is that uh let's say you closed on okay so in ohio for instance it's june 26 right now if i close on a house right now there's going to be a tax bill that's going to be due in july and that tax bill is for six months half of the year well i didn't live in the home for half the year i only lived in the home for like five four or five days so the tax probation is the credit that the seller will give you in taxes for that upcoming tax bill so basically you're sharing the burden of the upcoming tax bill they're paying basically prepaid taxes for the time that they lived in the home and then you are paying the tax bill for the time that you lived in the home during that bill so that one final bill is going to come due that you're responsible for paying and they're giving you the credit for the time that they lived in the home often this isn't included on loan estimates but it will be included in your final amount and that is going to be a credit that you get towards your closing costs so then estimated cash to close here is the final kind of bottom line number that's going to be due usually if it's over ten thousand dollars you need to wire this money instead of having a certified or cashier's check for it so overall this looks like a pretty fair loan estimate all the costs look pretty normal again i would just ask questions about hey do we need to lock this long i think the interest rate is good still worth shopping and figuring out what other options exist understanding that you know the actual origination charges here is the 8 500 minus the 3100 here my only other question would be around the escrow but other than that this looks really solid please shop around your loans to find the best deal possible use the software that i have the loan clarity advisor that will help you compare loan estimates side by side

Channel: Win The House You Love

Views: 24,853

Keywords: win the house you love, kyle seagraves

Id: u5HJQEvfj08

Length: 20min 26sec (1226 seconds)

Published: Fri Jul 01 2022