Closing Costs: A Fee Extravaganza, Part II

You may remember slapping your car salesman in last month’s newsletter. (If not, check it out at flchfc.usu.edu, under the Newsletters tab on the left.) Recall that in order to avoid fits of frustration, it’s best to anticipate all the lovely fees that are associated with closing on your home loan. Get a jump on what to expect by perusing the extensive list below!

Note: There are three different types of fees at closing: costs of getting a loan, charges for establishing and transferring ownership, and government costs.

Costs of Getting the Loan:

• Origination or application fees: These are fees for processing the mortgage application and may be represented by a flat fee or a percentage of the mortgage.
• Credit report: Lenders will require that the borrower’s credit be checked. They use this information to assess the risk of lending to the borrower. The fee for checking the credit report can sometimes be a part of the origination fee.
• Discount Points: A point is a unit of measurement equal to 1% of the loan value. Dis-count points can be paid when the loan is approved in order to buy down, or reduce the interest rate. These are not required.
• Document preparation fees: There will be an array of papers ranging from the application to the closing documents. Lenders may charge for these, or they may be included in the application and/or attorney fees.
• Preparation of amortization schedule: Some lenders will prepare a detailed amortization schedule for the full term of the mortgage. This more likely done for fixed mortgages than for adjustable rate mortgages.
• Appraisals: Lenders want to make sure the property is worth at least as much as the mortgage. Professional property appraisers will project an estimate of the home's value by comparing it to similar properties in the community. This is typically $400-450.
• Land Survey: At a minimum, the lender may require an independent verification from a surveying firm that the lot has not been encroached upon by any structures since the last survey conducted on the property.
•  Private mortgage insurance: For conventional loans, if the down payment is less than 20%, many lenders will require that private mortgage insurance (PMI) be purchased by the borrower. This insures that the lender will recover his/her money if the buyer defaults on the loan. Insurance payments will continue until the equity in the home reaches 20-22% of its value.
• Inspection: In many rural areas, lenders will require a water test to make sure the well and water system maintain an adequate supply of quality water to the home. A lead based paint inspection might be required as well.
• Prepaid interest: The first regular mortgage payment is usually due about 6—8 weeks after closing. For example, if you close in August, your first regular payment will probably be in October. The October payment covers the cost of borrowing money for the month of September, but interest costs start as soon as closing is completed. The lender will calculate how much interest is owed for the fraction of the month in which the borrower closes.
• Title Search and Title Insurance: Lenders require a title search to ensure that the seller is the owner of the property and that the title is clear of any liens or judgments. A clear title means that there are no encumbrances on the title, such as liens filed by creditors in an attempt to collect unpaid bills. The buyer usually pays for the title search. Title insurance gives the buyer a marketable title which means that the insurance company will protect the lender or owner if there is a flaw in the title after the property has been purchased.

Charges for Establishing and Transferring Ownership:

• Homeowner’s (hazard) insurance: Most lenders require that the borrower prepay the first year’s premium for homeowner’s insurance. Proof of payment is typically required at closing.
• Real estate agent’s commission: The seller usually pays the commission to the real estate agent.

Government Costs:

• Transfer taxes: A tax is sometimes required to transfer the title and deed from the seller to the buyer.
• Recording fees: These fees pay for the county clerk to record the deed/mortgage and change the property.
• Other state and local fees: These can include mortgage taxes levied by states as well as other local needs.

Now that you have a little heads up on what to expect, closing may end up being a positive experience for you (especially if the title company gives you a nice pen to keep). Just keep this list in mind, particularly as you shop around for lenders, and no one is going to pull the wool over your eyes!

Closing Costs: A Fee Extravaganza!

You found it. The perfect car. You’ve saved for years, done your research, and braved the shudder-inducing viper pit of salespeople. You’re sitting down about to sign the papers when you see that the price you had agreed on is in fact several hundreds or thousands dollars more. With suppressed glee, the salesman asks, “Ah yes, hadn’t you factored in taxes? And vehicle registration? And the doc fee? And the ‘absolutely necessary’ etching fee that simply adds the VIN elsewhere on your car??” (PS-Don’t ever pay the etching fee.)

It can be unpleasant, to say the least, to come to the end of an expensive transaction only to find out that you were unaware of all the costs. And it doesn’t just happen when you’re buying a car. Even more jam-packed with fun little fees are closing costs on a home!

It’s better to be prepared, so here are some basics:

• Closing costs include all of the fees that are related to receiving a loan.


• The law requires lenders to send you a Good Faith Estimate which states the estimated costs of closing the loan.


• The fees that are charged will vary depending on the lender you are using. This is one reason why it is important to shop around for the best lender.


• It is important that you study these fees and make sure that you know what each one is before you get to the time of closing. Make sure that the final fees are similar to the figures given at the time of application on the Good Faith Estimate. Some are allowed to fluctuate, others are not.


• There are three different types of fees at closing: costs of getting a loan, charges for establishing and transferring ownership, and government costs.

You’d hate to have your down payment all saved up and your purchase price all negotiated only find out that you owe thousands of dollars more than you expected. In general, closing costs range from about 2-4% of your loan amount. It can often be negotiated that the seller of your new home covers them, but keep in mind that he’s probably not Mother Teresa and may expect a higher selling price in return; so ultimately, you’re still paying for them. Closing costs can also be added to your loan amount, but like any loan, that extra interest you’d be paying adds up in the long term. In achieving your dream of homeownership, it’s best to plan on these costs from the beginning, and pay as much cash as possible. This will also reduce the likelihood of you slapping your closing agent like you did that car salesman.

Tune in for the Family Life Center’s next newsletter which will excitingly detail specific closing costs to expect!

The End of the World?!

Well, December 21, 2012 is looming around the corner. Are you feeling a bit unsettled? Is R.E.M.’s song, “It’s the End of the World as We Know It” constantly running through your head? Or are you blissfully unaware of the countless theories purporting that this day will be the last the earth sees?

Whether you’re sitting back, having a good laugh at all the nut jobs, or feverishly stocking Twinkies in your bomb shelter, it is a very wise idea to be financially prepared for any emergency. Some may be more difficult
to prepare for, e.g., the earth getting sucked into a black hole. However, there are some steps everyone can and should take to be ready for a “less cosmic” emergency.

Some general tips:

• Have some cold, hard cash on hand. The whole economic structure may not crumble, but all it would take is a massive power outage for your little plastic card to become quite useless. It’s unfortunately not even edible. Experts have differing opinions, but consider having enough cash to cover one month’s expenses, or at least $200-$500. You probably don’t need to be reminded that hard cash can literally burn or be stolen, so keep an appropriate balance that allows you to sleep at night.
• Have an emergency savings. This is extremely important for even non-apocalyptic living. Having at least some amount put away will help buffer you against job loss,deductibles, major repairs, unexpected taxes, solar flares, ANYTHING that might creep up on you. Experts again differ here, but consider working towards 3 to 6 to 12 months of living expenses. Where should you put it? More differing opinions, but check out savings accounts, money market accounts, certificates of deposit, online savings, etc. The key here is that the money is liquid enough for you to access it when you need it.
• Write down or video tape all your major belongings. It will be a lot easier to prove to insurance companies that you did indeed own a 42” flat screen if you have video of it.
• Have enough insurance. Not that it was intended to scare you silly when you were in elementary school, but the Wasatch front is indeed overdue for an earthquake. Don’t lie awake thinking about it, but definitely get earthquake insurance. It may be cheaper than you think. It’s also a good idea to evaluate your other insurances once a year, if not more: health, life, disability, homeowner, auto. Make sure you and family would be protected in the worst case scenario.
• Have a plan. Make sure your family knows where to go, where the food storage is, where the emergency supplies are, etc.

It’s easy to get a little bogged down in all the emergency preparedness talk. It can also seem overwhelming to get everything you need in place. Just remember that steadily working towards your preparedness goals will put you in a much better position than never having started. And no worries; hopefully/probably we’ll all be sitting back, sipping hot cocoa on December 22nd.

Holy Energy Usage, Batman!

Did you open your utility bill last month and exclaim, “Holy energy usage, Batman! Either the dog has been refrigerating the whole house while I’m at work, or there must be some mistake…” If this is the case, you are not alone. Citizens across Logan have seen their utilities inexplicably skyrocket the past few months (check out this Herald Journal article to learn why).

Your wallet has probably already been gouged this summer. One can only anticipate that the onslaught of another painfully frigid winter will further sap your cash. So, why not make a preemptive strike and start trimming down that meter usage now? The Family Life Center presents just a few ways to cut down your utilities (for any season) and keep that cash in your pocket:

• Use the dishwasher. Washing and rinsing dishes by hand three times a day uses more hot water and energy than washing one load a day in an automatic dishwasher. Run your dishwater only when it is filled to capacity.
• Use task lighting when working at a desk or workbench and turn surrounding lights off. It makes for a better ambience anyway.
• Consider using small appliances for cooking rather than heating the oven. A toaster oven may just change your life. Can you say, “Reheated pizza miracle??”
• Don’t open the oven to preview food. The temperature drops 25-50 degrees every time you take a peek.
• Use fans wisely. In just one hour, a hardworking bathroom or kitchen fan can expel a house full of warm air. Turn fans off as soon as they’ve done the job.
• Turn the water heater down. A water heater should be kept around 120 F.
• Use energy-efficient fluorescent lights inside and out. It may not be rock star lighting, but they use about one-third the power.
• Sign up for budget billing for your natural gas and electric bills. This allows you to pay the same amount each month throughout the year. 

While forking out the dough for your utility bills can be thrilling, there may be EVEN MORE fun things to do with your money. Why not try some of these out and see just how much you can hold on to!

Special Thanks!

For those of you that don't know, the Family Life Center relies on grant funding to keep it's doors open.  We'd like to say a special thank you to American Express for its generous grant!  We love offering financial and housing resources to the residents of Cache Valley through our monthly workshops and one-on-one counseling sessions.  With the help of this grant, the FLC can continue to provide these valuable resources services to the community.

Fred & Certificates of Deposit

Fred, the intrepid saver that he is, managed to accumulate a whopping $3,000 last year. He’s been saving for a fully-loaded Chrysler LeBaron that is sure to increase his manliness by at least 200 percent. Fred estimates that he’ll reach his goal in about two more years.

A lot of people have been telling Fred where he should put his saved money in the meantime. His dad doesn’t trust banks and suggested that he cash out and keep the money under his mattress. A friend told him that if he really wanted to make his money grow at a quick pace, he should invest it in the stock market. Confused, Fred sought counseling at the Family Life Center, where a counselor educated him about several options, one of which was a certficate of deposit, or CD.

A CD is a relatively low-risk “investment” (if you could even call it that), typically made through a bank or credit union, that will offer higher interest rates than regular savings and checking accounts. If Fred were to purchase a CD, he would commit a fixed sum of money for a fixed period of time (six months, one year, five years, etc.). In exchange for coming this money, Fred would be compensated with higher interest paid to him by the bank. At the end of Fred’s two-year wait, he would withdraw his original amount ($3,000), plus  accrued interest (perhaps $60-90, depending on the interest rate he locked in). There are several different
types of CDs these days, meaning Fred won’t necessarily have to lock in an interest rate for the duration, or suffer big penalties for early withdrawal.

Fred weighs his options. His dad makes an interesing point. If the money is under his mattress, he could avoid any shenanigans from the banking system. But Fred is severely accident prone, and the chances of him burning down his home/his cash in a grease fire is fairly likely. He also lives in a bad neighborhood with a decent chance of a break-in and subsequent cash thievery. And to further deter this option, Fred also knows that if he were to cash his money out, inflation would eat away at it over the years. In some ways, Fred sees cashing out as more risky than investing.

His friend also makes an alluring argument. If he put his money in stocks, he would certainly have the potential to earn a higher return. But Fred suffers from insomnia, and he knows that he just couldn’t make peace with the universe if his investment lost half its value overnight. Since Fred needs the money in two years, he decides the stock market is just too risky for this kind of goal.

So, the take-home for Fred is that he wants to earn at least some return on his money, but he doesn’t want to take on too much risk to get it. He decides that a CD is a happy medium ground for this situation. He learned that as long as he invested in a CD issued by an FDIC-insured bank, his money is safe (up to $250,000, that is). And because Fred is just so stinking smart, he researched penalties for early withdrawal (in case he had an emergency), and found out that in most cases, the penalty was only 3 months worth of interest.

So Fred feels great about his decision to put his money in a CD, but when he checks what the going rates are today on a 24 month CD, Fred gets real sad. He sees it’s only at .5%. In fact, an 80 month CD is only offering 1.85%. (The longer the term, the higher the interest rate, he remembers). But before Fred gets really down in the dumps, he remembers that his counselor at the Family Life Center had told him just about all savings/investment rates are abysmally low right now. But everyone seems pretty hopeful they’ll come back up eventually. In the mean time, Fred has several other options for his LeBaron fund, all of which depend on several factors, including the going interest rates. Stay tuned for the next newsletter to find out!

America Saves: Credit History and Saving

April was Financial Literacy month and America Saves wants to make sure you understand the importance of your credit history and how this ties into successful saving. It is important for all Americans to have savings. Having a savings account allows you to pay for emergencies, gives you financial freedom, and can help you avoid credit problems that could hurt credit scores.

Having a strong credit history, reflected in good credit scores, allows you to qualify for lower interest rates and fees. This helps you to free up additional money to set aside for emergencies, retirement, and other smaller unexpected expenses.

The connection between successful savings and good credit plays an important role in your financial life. Not only is it essential for obvious things like qualifying for a loan or getting a credit card, but also for less obvious things like getting cellular telephone service, renting a car, and perhaps even getting a job.

Want to learn more about the importance of credit history and successful savings? 

Download the Importance of Credit History and Successful Savings packet (http://americasaves.org/images/newsletters/creditscore.pdf) which includes information on: 

• What is a Credit Report and Score?
• Why is Saving So Important?
• How do I Start Saving?
• What Savings Options Are Available to Me?
• Why is Good Credit Management so Important? 
• 5 Tips for Building Good Credit.
• Frequently Asked Credit Questions.
• FDIC Model Safe Accounts.

What are you waiting for?

Set a Goal.

Pay down debt, save automatically, and assess and improve your credit history. Go to www.annualcreditreport.com

Make a Plan.

Improve your credit history by making the minimum payment on all bills, keeping balances low on sources of credit, and applying for credit wisely.

Save Automatically.

In order to have good credit scores you must demonstrate a habit of good credit management over a long period of time. Set up direct deposit or put part of your check into a savings account automatically each month to pay down debt and ensure you have enough money for emergencies.

Are you ready to take charge of your financial future?

America Saves is here to help. America Saves can help you develop your goals and take action. When you join as a saver, you’ll receive the following benefits:

• Free subscription to the quarterly American Saver newsletter
• Free monthly e-mail newsletters with savings advice from national experts
• Free access to the members-only Savers Tracking Tool to help you reach your goals

{This month’s post was brought to you by guest author Katie Bryan, America Saves Communications Manager}