Which Lender to go with

3 Replies

All,

I'd like some advice as I'm deciding between 2 lenders.  Purchasing a $250k owner occupied duplex, 15% down, offer accepted today.  I have two lenders that have offered some good rates, but this will be my first purchase and I'm new to what closing costs are typical.  Below are the offers:

Option A

3.875 interest rate

Closing Costs:  Total $1076 net closing costs  (could you tell me if they are missing anything?)

-Appraisal Fee $540

-Credit Report $24

Tax Service Fee $53

Flood Zone Determin. Fee $9

Processing Fee: $420

Settlement Agents Fee $200

Lenders Title Insurance Premium and Endosements $250

Recording Charges: $60

Discount from work: $500

Net closing costs $1076

Option B

3.6 rate, but with 1.25% in points

Origination fee                  $475.00

Appraisal                             $450.00 or 600 depending on the property.  450 if normal built house inland or 600 if unusual property or on the water

Credit Rpt                            $21.00

Tax Service Fee                 $56.00

Flood Determination      $10.50

Est. Closing Fee                 $300.00 ** (see below)

Est. Title Fee                      $325.00 ** (see below)

Est. Owners Title              $850.00 **** (see below)

Recording Fee                  $60.00 

                                                $3,087.50

You will also have 1.25% in points. 1.00% because this is a duplex and 0.25% because of credit score/LTV (Loan To Value = loan amount vs purchase price)

The way this works is you take your loan amount x points and that equals a dollar amount, this then get’s added on top of your closing costs and you keep the low rate you lock in at.  212,500 x 1.25% = $2,656.25

If you don’t want/cannot pay that fee, you can roll some or all of it into the rate.  If you locked the rate right now on a 30 year, it would be 3.60% the rate increase for 1.25% in points is 0.35%.  So your new rate would be 3.95% and the $2,656.25 would go away.

Please remember my application fee, any earnest money you added to the offer and if you are getting any credit’s from seller would go towards the fee’s above.

** different title companies have different fee’s so these could be a little different, but close

**** this is a fee that is paid by the seller, however on a GFE we must disclose it to you in the state of WI

Which do you think is the better deal?

This is the kind of question I rely on my lender to answer for me but here are a few comments. Hopefully you can get a WI lender on BP to respond in more detail to cross check these fees. 

Compare A and B without points (apples to apples so to speak)

A: 3.875% and $1076

B: 3.975% and $3087.50

Assuming these expenses are correct then you can see your answer right there. A looks better.

Each lender has to give you a TIL statement (Truth in Lending) which confirms these rates and expenses.

Now, you should be able to roll your closing costs into the mortgage on both options as long at the seller agrees and your lender approves (and gets that appraised value). That is a nice option because you bring no money to the table for closing expenses. The question as to whether you should do this really depends on your investment goal. 

If you're holding for less time than it takes you to pay off that portion of the additional mortgage payment for this option then it is worth considering. Make sense?

In other words let's say you have $2400 in closing costs and it costs you $50 more on a payment to cover rolling that into the loan (it would not be that much but this is just an example). That is $600 more per year or four years before you'd be paying more to exercise that option and it would not be worth it. If you hold it for 10 years than you'd pay $6000 for $2400 (in general and removing other tax benefits etc) which would not be a good decision. 

Build a network with a lender that understands your local market. That role is a critical partner in your investment purchases. Best of luck,

Jim 

Compute the APR, compute the payments of each at the loan PV, compute the FV, then deduct the points and loan cost from the PV, then solve for the interest rate, do that with each alternative.

Loan costs are all fees, points required to fund the loan, not appraisal or credit but direct loan expenses.

When financing points, deduct the interest charged on the points, those are an interest expense in funding.

Lenders are to give you the APR at application and again at approval prior to closing and at closing. That's why the requirements exist under TILA, so borrowers can compare rates and know what they are actually paying.

The other assessment needs to take into consideration how long you expect to keep that loan. Buying down the rate usually takes around 7 years to break even, at that point most properties are usually sold or refinanced. If you're keeping the loan longer, it may pay to buy down the rate.

The other acceptable reason to buy down is to obtain a qualifying rate, if you must in order to qualify at that payment.

Otherwise, I don't advocate buying down rates. Good luck :)

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@Adam Moyer  

I'm a loan guy and I like option A better. Net costs are $2000 lower and the rate is only .2% higher - which won't make that much difference in the payment for that loan amount (around $30). Your break even point on the additional $2000 in costs is around 4 years. At the 8-year mark, the extra $2000 in costs only saves you a net $2000 in cumulative interest. If you know you'll keep the loan that long, it might make sense. If not, then the higher rate/lower cost option might be better. 

I would recommend that you have both lenders price the loan out at the 3.875% and the 3.625% rates. This might give you some additional options that might be better than what you've been offered. Feel free to message me and I can crunch the analysis and see which one looks like the better deal.