What does the BP community think of paying closing costs up front or should you finance the costs?
I am currently looking at refinancing my FHA to conventional after one year but financing my refi closing costs will put my balance higher than what I bought the property for!! Am I insane to do this?
Getting rid of the 1.75 mortgage insurance is a big savings. What are they offering conventional? My suggestion is to pay the title and escrow fees, do not pay points to buy it down, and pay the tax and insurance out of pocket
Thank you for your response. They were saying my closing costs were 6k to save $150 a month. Going from FHA to conventional is what I want to do eventually to get rid of the MIP like you said. I was debating of paying some things out of pocket. Not sure why they need to do taxes and then my years worth of homeowners insurance. Seems like nonsense to me.
Paying some closing costs sounds like a smart move to me. Thank you!
Forgot to answer your question!! They are offering 2.875%
The reason for tax and insurance impounds: existing lender will not give you or them the money in the impound that sits there today. You will get that about ten days after close. If you bought new construction there is not enough there to pay the tax bill coming as the supplemental increases. Assume you have .5% of sale price in tax needed and half your annual fire/hazard bill. Saying the closing costs are $6 grand doesn't tell you how to analyze the deal. Ask for a LE 2.875 no points is where a FICO 690 would land, then you owe escrow $590 plus title (based on loan amount my guess is $300000? cost = $410) plus notary $175. This is not a commitment to lend just numbers to help you see the big picture.
6000 divided by 150 is three years and three months to see savings. Will you keep this four years or more? If not, don't do it. If your rate is 3.5 it's worth it, hoping you didn't pay points to get 3.5.
I've been a lender 29 years. Also look at FHA streamline no appraisal easy peasy might also have better short term savings.
@Alex Waite as a general rule of thumb, money now is worth more than money later. Unless it represents significant long term savings or the cash flow management will be challenging, I’d advise financing the costs, especially on a mortgage with such low interest.
Thank you for your response Dave. I think I am going to finance them. I was just concerned about putting my balance higher than what I bought the house for! (The appraisal is higher than purchase price)