Perhaps the most frustrating and confusing part of getting real estate financing involves the way loans (and your interest rates) are priced in relation to both loan fees and other compensations to those who do the work to get your loans closed. Read on for some insider information that can save you thousands of dollars! For more how we save you money, click here.
One of the biggest variables that affects your final interest rate is the amount of compensation your loan agent expects in return for getting your loan closed. There is no such thing as a "zero point loan" even though you've seen advertisements for them. This is an example of the types of misleading advertising that we stand against at Avatara. Tip: A "point" equals 1% of your loan amount in financing terms.
Loans can be priced in 3 basic ways:
a) you pay some discount points (or fractions
of points) to the lender to get a low
interest rate. This means that in addition
to other closing costs you will pay an
additional amount to the lender. Or,
b) you pay nothing to, and receive nothing
from, the lender in relation to the interest
rate (also called PAR pricing). You still
would pay closing costs and usually your
mortgage broker's compensation, but nothing
to the lender except their normal fees.
Or,
c) the lender pays you in the form of a
rebate in relation to the interest rate,
generally increasing the interest rate.
You can use the rebate the lender gives
to pay some or all of your closing costs,
including compensation to your broker.
The final option (c) above is the method by which "zero closing cost" loans are priced. Yes, you will not pay closing costs using this method of loan pricing, however you will also pay a higher interest rate, and therefore higher monthly payments each month. By paying your closing costs directly instead of having them financed as part of your loan you can potentially save thousands of dollars! Plus... our preferred lender discounts can save you money on interest and closing costs as well.
Your Avatara consultant will discuss with you the length of time you plan to keep the loan(s) you are getting... and calculate the break-even points for you so that you have clear numbers to consider as you decide which option (or combination of options) works best for you. We are very creative and flexible in the ways we stucture your financing and can often offer solutions that others will not think of. Our goal is to get you the perfect loans for your unique situation and to save you money.
Appraisal: A professional licensed appraiser inspects the property and issues a report of its value.
Broker Fees: Compensation for your broker's pre-underwriting, negotiations with lenders on your behalf, coordinating with the appraiser, escrow officer, the lender's underwriters, loan processors and, most importantly, you. Also, for their expertise in getting you best loans and protecting your best interests.
Hazard Insurance: Insurance on your real estate property covering its loss or damage. Tip: You generally shop for your own insurance and are required to pay 12 months coverage at your loan closing. This is a recurring closing cost.
Lender's Fees: Various fees the lender charges to process the paperwork, pay the underwriters involved with your loans and to verify your application.
Processing Fees: Paid to the broker's loan processor.
Pro-rated Interest: The daily interest rate of your new loan(s) multiplied by the number of days between the day your loan(s) fund, and the end of that calendar month. Tip: This is a recurring closing cost. If you close late in the month this amount will be lower.
Recording Fees: Paid to the county recorder's office when you become the legal owner of the property. Tip: This is the point at which you become the legal owner of the property!
Title Insurance: Protects you and your lenders against problems that could arise concerning true and legal ownership of the real estate property.