How do I not get screwed on a mortgage?

[cfabe]

Well I met with the banker this afternoon. Here is the deal they can offer me. This is using the Ohio loan program.

122k principal, 0% down, 30 year fixed at 5.70%. No second mortgage, PMI is $60 a month.

Fees from the bank:
Loan origination 1% - $1220  - this is per the Ohio Housing Finance Agency, does not go to the bank
Appriasial - 300
Credit Review - 50
Document Prep - 225
Tax Service Fee - 79
Underwriting fee - 275
Flood Certificate - 16
Courier/Wire Fee - 40
OHFA Review fee - 20

Estimated Title Company Fees
Closing/Settlement Fee - 350 - seller pays half
Title insurance - 527 - seller pays half
EPA endorsement - 75
Recording fee - 195
Survey - 135
OHFA transfer fee - 150

Prepaid stuff at closing:
20 days interest, 2 months Homeowners ins, 2 months property tax, $821 total

Closing costs total: $3657 (of which the seller will pay 438)

With these costs the APR ends up being about 6.1%. The banker said that the rate on a normal 100%LTV loan without the Ohio program would be around 6.7%, and PMI would be at least twice as much.

On this versus a non-ohfa loan, the closing cost difference would be -$1220, and the payment would be about $140 a month more. So if I stayed in the house longer than 8.7 months, the OHFA is a better deal. Is this math right?

Comments?

[Otherguy Overby]

PMI is generally required for greater than 80% loans that can/may be sold on the secondary market.

Institutional lenders like banks and  credit unions generally don't require PMI if they plan to keep the loan in house.

Brad brought up FHA loans which have their own special kind of insurance that is a percentage tacked onto the loan amount at origination.  In my day it was about 3 percent of the 110k loan max.  It's probably significantly different now but still required.  BTW, if the buyer sold the house or refied before the full term of the FHA loan a refund was due if one knew to collect it.  I recall seeing late night TV money shows long ago charging a fee to do this...

[The Rabbi]

It has been a while since I was in the business so cannot comment on the rate.  The only fee I see that sets of bells is the "credit review" fee.  WTF?  Isn't credit review part of underwriting?  The rest of it looks about right.  In TN the seller pays the title insurance but each place has its own custom in the matter.

[Brad Johnson]

"Credit Review" is a fancy name for pulling a credit report. $50 is a little on the high side but not totally out of line. The origination is higher than we normally see locally, but only by a couple hundred. And it gets you an excellent 5.7% APR (I checked this morning and the APR on a conventional 122K mortgage is 6.5% locally). Keep in mind that a 1% buydown on a conventional mortgage will definitely NOT get you that kind of reduction in your rate! I'd say stick with what you have - looks pretty good. Count yourself lucky.

Brad

[The Rabbi]

Brad, I am unclear whether this fee was part of the initial application (as it usually is) or an additional fee.
But I agree that it looks like a good deal overall.

[Brad Johnson]

Sometimes lenders roll it into the "Application Fee" which is really just the credit report and appraisal fees combined and paid up front. Some seperate it out and charge the credit report up front, then run the appraisal charges through at closing. With the competition for mortgages more and more lenders are doing the latter to eliminate the objection of a big up-front expense for the applicant.

Brad

[Otherguy Overby]

Lenders often require an "upfront" fee to keep people from applying with several lenders.

Now one thing to be aware of is to really read all your estimates & ask questions.  Next file those estimates away somewhere safe.  When the sale is completed you'll get a form that's generally referred to as  "Hud One" from whoever is the settlement agent, escrow officer or whatever.  This is completing RESPA (Real Estate Settlement Procedures Act) and you take this form and compare it to the estimates you've filed away.  Chances are they will mostly be in agreement.  ALL costs are itemized and you'll personally see who all had their fingers in your RE purchase.

Many of the arguments about a transaction are over prorations and who has to pay for taxes & such depending on whether the bill has been paid  and when it's due.   Lenders tend not to put prorations in their "good faith" estimates...  

About title insurance in another question, there are two parts:  one to inspect and insure the title and one to warrant the buyer to the lender.  Who pays the title part of this insurance depends on what's usually done in the area.  The "Lender's" policiy is most always a buyer's cost.

[cfabe]

Yes, the 'appplication fee' at this bank is the $300 for the apprasial, and the $50 credit report fee.  

I should clarify that the 5.7% is the base rate on the loan, with all those fees the APR is around 6.1%, but still significantly lower than what I could get otherwise on a 100% LTV loan. Sounded like a good deal to me, thanks for the affirmation.

[Brad Johnson]

"Lenders tend not to put prorations in their "good faith" estimates..."

Good lenders do, crappy ones don't.

cfabe, I presumed that was the case. The base rate (fixed balance APR) is the one to look at. The 6.1% APR first-year APR must be stated that way to show how the closing costs affect your actual APR. Luckily it's a one-shot deal. Some fed thought it would be a good idea but it really only serves to confuse people - they already know how big a check they're writing at the title company, and the GFE has already given you a line-item cost summary.

Brad