What Determines the Total Cost of Your Mortgage

Buying a home? Here's what determines mortgage rates.

Costs to secure financing are a big factor when it comes to getting a mortgage. And knowing why your loan costs a certain amount is critical to being able to understand how lenders price loans in the marketplace. People tend to think of interest rates when it comes to mortgages, but that’s not the only cost to consider.

Here’s what you need to know about the things that determine your mortgage fees.

Do I Really Have to Pay Mortgage Fees?

Remember, all loans come with fees and all fees are paid for by someone. You can have what seems like the perfect loan and there will still be fees, like closing costs. There are two situations where you might not have to pay all of the closing costs. The first way is for a seller to credit the closings cost when you purchase your home. The second is to select an interest rate that generates an overage, or credit, which is applied to your loan fees.

For the purpose of this discussion, we’ll focus on the factors that determine your interest rate and any points associated with that rate.

Two factors that determine your loan fees above anything else are your loan-to-value (LTV) and your credit score. (Not sure where you stand? You can view two of your credit scores for free on Credit.com.) Your loan-to-value (LTV) is the difference between the loan amount you are seeking and the value of your home. Your credit score is particularly important to how your loan is priced because it determines the risk associated with your loan.

The following things play out in terms of how your loan is priced:

High Loan-to-Value (LTV) Loans

Loan adjustments start at 65% LTV, in increments of 5%, all the way up to 95% LTV on conventional loans. For example, if you’re looking for a conventional mortgage and you have 20% equity in the home — 80% LTV — your loan will be priced worse than someone who has 30% equity and 70% LTV.

Your Credit Score

Your credit score is the barometer the lender uses to gauge your potential for default. The higher your credit score, the less likely you are to default, and the less risk the lender assumes by granting you that mortgage. When it comes to mortgages, credit scores generally break down like this:

  • 740+ — Excellent
  • 720-739 — Great
  • 700-719 — Good
  • 680-699 — Fair
  • 620-679 — Poor

Occupancy

If the property you are looking to purchase is a second home or a rental property, you might end up paying an additional pricing adjustment in the origination of your mortgage loan. Rental properties are especially known for this pricing adjustment. This change can influence an interest rate by as much as .375 compared to a primary home loan.

Property Type

If your property is a condominium and/or a multi-family property, you can generally expect to pay more. Specifically, this is because both types of properties contain more risk to both Fannie Mae and Freddie Mac than a single-family home.

Condominiums also have rules and regulations that single-family homes do not. A multi-family property, such as a duplex, is more risky because there is another unit involved and more potential liability compared to a single-family home.

Some General Guidelines

If you are looking for a mortgage with a high loan-to-value and a great credit score such as a 95% financing … then you can expect to be paying interest rate of .375 to .5 more than what you might see advertised online or in print.

If you are financing a triplex as either an owner or a non-owner-occupied transaction … then, if the property is a primary home, you can expect to pay about .5% in the form of a discount point based on the rate chosen.

If you will be renting your property out for investment purposes … then you can expect to pay as much as .5% more in the interest rate, with up to one discount point based on the rate chosen.

Final Thoughts

The moral of the story is that not all mortgage rates and pricing are created equal. If you are pricing out a loan with a lender and your scenario falls into any one or more of the intricacies outlined in this post, you can expect to pay more for the type of financing you are seeking.

Image: courtneyk

The post What Determines the Total Cost of Your Mortgage appeared first on Credit.com.

Here’s What It Costs to Sell a House

Costs-to-Sell-a-House

If you’re in the process of moving out of your current house and into a new one, you may have thought a lot about the costs involved with buying a house. After all, there are many. But as you’re considering your moving budget, it’s important that you remember to factor in what it costs to sell a house. 

According to Carlos Jaime, owner of CTC Brokers & Associates in Corona, California, these expenses can include things like paying the escrow company, title insurance, transfer taxes, home warranty plans, HOA documents, possible credits to the buyer as well as repairs that may need to be made before closing on the house (more on some of these later).

But, Jaime said, real estate commission is the biggest expense a homeowner faces when selling their home. He said these commissions often “range from 2.50% to 7% of the sales price,” and because it is such a major expense, he emphasized the importance of having a good real estate agent helping you during the sale of your home.

“Do your homework and interview two to three agents, not just the local rock star,” Jaime said. “Find an agent that’s experienced, professional and isn’t charging you an arm and leg.”

“The more you pay in commission, the more you must sell for just to recoup the premium you’re paying to a high-commission agent,” Jaime added. “Focus on your bottom line and not just the sales price that an agent is promising you.”

Getting Your House Ready

Before your house is actually sold, it’s a good idea to spruce it up a bit. After all, as a potential buyer yourself, you wouldn’t be interested in a home that looked, well, blah, would you? Of course not.

Keep in mind, this will be another expense in your process, but it can also be factored into your asking price, if you so choose. But where do you start?

“Have [your real estate agent] bring in a home stager for a consultation on what you can do yourself to spruce up the visual appeal of your home,” Jaime said.

Things to consider include painting your home (both inside and out), getting the windows professionally cleaned, landscaping and repairing any problem areas (think scuffs in the floor, broken fixtures, etc.) in and around the home.

After you’ve done this, you may consider using a stager to organize, declutter, decorate and furnish your home to make it look as appealing as possible for any showings your agent lines up.

Arranging Home Inspections

Jaime suggested having an agent “arrange a pre-listing home inspection and pre-listing termite inspection to avoid surprises down the line.” For example, if your inspector discovers standing water that damaged the foundation, you can take action before putting the house on the market. Jaime said that knowing these details in advance can help you decide what your best plan moving forward is, whether you fix the problem, sell the home “as is,” adjust the price or something else.

Getting Title Insurance

Sometimes the homebuyer is the one who covers this cost, but it can be seen as a sign of good faith if the seller purchases the policy. This way, they are showing the buyer that they have a clear title to the home, such as not having a lien or other problem. (Note: If you have a lien on your home, you’ll have to also pay that off before selling your home.) Either way, it doesn’t hurt to allocate this to your home sale budget.

Paying off Your Mortgage

Just because you’re packing up and heading off to a new home doesn’t mean your responsibility for the mortgage on the old house will stay behind. Read over your mortgage agreement to figure out what sort of prepayment penalty fees you may be faced with (meaning you may get charged a penalty for paying more at one time than what your mortgage terms specified) as well as any interest charges. Keep this in mind as you consider what houses you will be able to afford to buy once you’ve sold your home. (You can also use this tool to figure out how much home you can really afford.)

Other Potential Bills

If you’re living in your new house already, you may have to pay two sets of bills for a while. Sure, you can shut off some of your services at the old place, like cable and internet, but you’ll likely still want to keep the power on and the home heated/cooled so it’s comfortable when potential new owners come by. It might also be wise to check your homeowner’s insurance policy, or speak with your agent, to find out if you need different coverage while the home is left unoccupied. Beyond that, consider the costs of getting everything out of your old home and into your new one. (Pro tip: If you’re staying nearby, ask your friends or family to help you move. Paying for dinner and drinks for the group can be a lot less than paying for a team of movers or rental truck.)

Paying for These Expenses

As you think about the expenses you’ll have both in buying and selling a home, it’s a good idea to consider how you’ll pay for them. If you have to put any of your selling expenses on a credit card, ideally you’ll want to pay those statements off in full each month, as doing so won’t harm your credit scores. However, if you are unable to do so, make sure you’re paying off what you can each month and doing so on time (payment history makes up the largest portion of your credit scores). You can use this tool to figure out what your lifetime cost of debt could be.

And if you’re still searching for the right home to buy next, it’s a good idea to review your credit reports (which you can do for free once each year by visiting AnnualCreditReport.com). Knowing where your credit stands will give you a good idea of the terms and conditions you may qualify for on your mortgage. If you discover your scores aren’t quite where you’d like them to be, you can take steps to repair them, like paying down debts, repairing any errors on your reports and limiting inquiries while your scores rebound. You can monitor the effects these are having on your credit by viewing two of your credit scores for free, updated each month, on Credit.com.

Image: Highwaystarz-Photography

The post Here’s What It Costs to Sell a House appeared first on Credit.com.