Conventional Loans

Your Credit Score

For  a home loan,  you need a tri-merge score or a residential mortgage credit report (RMCR). A tri-merge score includes the scores from the three largest credit-scoring agencies, Equifax, Experian, and Transunion. An RMCR is not free, but we do not charge up front for the RMCR. The RMCR includes three scores, and we use the middle score. There is additional information on your borrowing habits to help a lender decide how much you can borrow. The RMCR is a stricter look at your ability to repay a mortgage.

The higher the score, the better your interest rate. Advertised interest rates are just the typical rate for most borrowers. You will find that if you have a low score, the lender wants to charge a high rate, and if you have a high score, the lender wants your business and offers you a lower rate. As noted, you need a score of 620 or higher for a conventional mortgage.

Auto loans, credit card debt, and student loans are a good credit score indicator for lenders if you paid them on time. Late payments, on the other hand, lower your credit score.

Total House Payment

PITI means principal, interest, taxes, and insurance. Your total house payment will include these.

The principal is the amount you borrow from a lender. The interest is the rate you pay the lender on top of the borrowed principal. While you agree to borrow a certain amount, or principal, you’re actually paying back the principal plus interest.

Property taxes are set by a city or county tax worker who decides the value of your home. Property values are updated about every four years, but tax rates can be adjusted annually.  Most borrowers make property taxes part of  the monthly mortgage payment, but you can pay them separately. Property values and tax rates are available online at city and county government sites.

All lenders require you to buy insurance for your home, called homeowner’s insurance. You pick the insurance policy, and the payment is added to your monthly payment.

Private Mortgage Insurance

Private mortgage insurance (PMI) will be added to your monthly payment if you choose to put down less than 20 percent of the purchase price. Mortgage insurance protects the lender in case you do not make your payment; it does not protect you if you cannot make your mortgage payment.

Nearly half of home loans have some form of mortgage insurance added to the monthly payment. The cost of mortgage insurance ranges from 1/2 to 2 percent of the loan amount and depends on how much you put down and your credit score. When your principal balance, which is basically the amount you borrow, reaches 80 percent of the original value of the home, you can request to cancel the mortgage insurance. This information will be provided to you in a PMI disclosure. The original value of your home is either the purchase price or the appraised value of your home when you purchased it.

Cash

We ask how much money you currently have in checking, savings, and other accounts. Unless you are buying new construction, you must pay the seller due diligence and earnest money along with your offer to purchase*. Your realtor will explain these items along with your offer to purchase. For your mortgage, you need money for a down payment and possibly to cover the cost to legally sign for the loan. Signing for the loan is also called closing the loan. Count on spending $3,000 to $7,500 for your closing costs.

*For more information on due diligence and earnest money, see First-Time Homebuyer.

Lender Fees

• As a mortgage broker, we rarely charge origination fees on our loan products. The lenders we use pay our fee.
• Loan origination, points, commitment, and application fees  may or may not be charged by other lenders. It is important to look at section A on page 2 of  the loan estimate to determine how much you are paying in these fees for the interest rate offered.  For example, a 3.75% rate with these fees may not be as good a deal as a 4% rate with none.
• $75 is a tax service fee
• $18 is for flood certification
• $65 to over $200 for credit reports depending on whether your credit is excellent or needs work.

Third-Party Fees for Closing Your Loan

A third party is anyone besides you and the lender. Some of these fees may be added to the amount you are borrowing. Third-party fees include:

• $950 and up for an attorney depending on the attorney you choose.
• Around $2.50 per $1,000 of the purchase price of the loan will cover title insurance.
• If your home is $250,000, then title insurance will cost about $625. Your attorney will do a title search to make sure there are no legal issues with the title or ownership of your home and also no tax liens or judgments against the sale of the home. The attorney will obtain title insurance that usually protects you and the lender from any title risks.
• $100 to the county government to record the legal documents.
• You do not need a home inspection to get a mortgage, but most buyers pay about $500 to a professional who will inspect the condition of the home and give you a home inspection report. This report is used to review any needed repairs with the seller.
• An appraiser must determine the fair market value of the house. Depending on the loan type and location of the home, the appraisal will cost about $550 to $800.
• $20 or less for a tax transcript.

Prepaid Items

At closing you prepay some items including

• Interim Interest. Interim interest covers the mortgage interest on the home loan from the day you sign for the loan until the end of the month.
• Escrow Account. Escrow is a legal term. It means  your lender is holding your money in order to pay another party. Generally, your annual homeowner’s insurance and property tax bills are paid from your  escrow account. Part of your monthly house payment will go into your escrow account, and the lender withdraws money from that account to pay your annual property tax and homeowner’s insurance bill. You receive an annual statement to show your balance. When you sell your house, any money left in this account is returned to you.
• Homeowner’s Insurance. You choose your insurance agent and homeowner’s insurance policy and pay the first year’s premium at closing. The lender also takes about two months of premium payments to go into your escrow account as savings toward the next year’s premium. When the premium  is due the lender can pay the full amount out of the escrow account (see above).
• Other Costs to Close. There are other costs that you may have to assume depending on your particular financial situation and personal choices (see below).

Closing Disclosure

Read your Closing Disclosure (CD). This form documents all of your closing costs and is final. Federal law requires  mortgage lenders to provide loan applicants with an initial  Closing Disclosure of the closing costs at least three days, excluding Sundays and national holidays, before closing. The initial CD must be signed by the borrower at least three days prior to closing. Changes can be made to the initial CD up until closing.

Page three of the CD compares the loan estimate with the actual fees.

Closing Cost Comparison

Ask questions about what you are being charged. We can look at your loan estimate  from any other lender and point out all costs to you. Brokers like Carolina Home Mortgage have different rules than banks. We will tell you how much we are paid and how much credit we can get for you. Banks are not required to share this information.