Most people are intimidated by the mortgage application process so they only go to one lender for a loan. Yet you know that shopping around gets you the best price, so toughen up and take on the task of getting the best deal on the biggest expense in your life.
When you’re shopping for a mortgage, a lot of people pay most attention to the interest rate. But that’s only one-third of the puzzle. You also have to know whether the loan includes any points and what the closing costs will be.
Points are an up-front charge for taking out a loan. Each point is one percent of the total amount borrowed. On a $150,000 mortgage, that would be $1,500 you would have to pay at closing.
Closing costs can include a lot of smaller charges. Some lenders are breaking them down into smaller categories, such as “lender closing costs” and “regulatory closing costs.’
Borrowers should ask for a list detailing all these fees. There’s something called a good faith estimate of settlement costs, but that’s a non-binding document. It will break down the expenses of the loan, with all the fees, but it won’t disclose who is paying them. What you want is a list of each fee, along with who’s paying it.
Be aware that you have the right, one day before your closing, to see something called the HUD-1 Settlement Statement. It’s the actual closing statement, and it lists every closing charge in detail.
Real estate closings are like being feed into a buzz saw. All you do is sign documents, and it’s overwhelming. If you see the HUD-1 in advance, you can compare it to your good faith estimate and ask your loan officer if something doesn’t look right. At that point, there’s still time to correct something if need be.
Clark Howard — Save More, Spend Less, Avoid Rip-offs — for the Atlanta Bargain Hunter blog
Consumer expert Clark Howard’s column appears here each Thursday in conjunction with Deal Spotter, a weekly print section in The Atlanta Journal-Constitution. Find more answers to your consumer questions at Clark’s website.