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I am purchasing a home for 362k and my closing costs keep getting higher everyday. I am looking to buy down the loan and that may cost me upwards of $ 6,000 so my total closing costs are around $ 10-11,000.
So $ 6000 in buying down the loan and $ 1800 in prepayment reserves plus all the other fees..
does the amount i pay for buying down the loan and prepayment reserves become a credit? I something along those lines and i am confused..Am i really paying the 6k to buy down the loan or is discounted from my original loan amount??

6 Thoughts on Closing Cost’s: When to pay and how it works..?
  1. Reply
    November 23, 2011 at 4:21 pm

    You need to speak with your Realtor and title company and get them to explain why the costs are so high. Usually, the seller pays a portion of the closing costs. You may be getting ripped off.

    Also, be really sure your real estate agent is acting for YOU and not for the seller.

  2. Reply
    November 23, 2011 at 4:25 pm

    Wow. You should really start shopping for some other quotes.

    If your loan officer is trying to get you to buy the rate down, and you have no idea where that money is going or how you are saving because of it, it’s probably just going in his pocket. There’s no excuse for that to be offered to you without a clear presentation in writing as to how you might save money.

    In most cases, it takes 3-5 years to break even on paying a discount point. It varies depending on how much of a break in rate you are getting for that point.

    Example: You are financing $ 300,000. With 1 point, you can have a rate of 6%. Pay 2 points ($ 6000), you can have 5.625%.

    At 6%, your payment is $ 1798. At 5.625%, it’s $ 1726. So you just paid $ 6,000 upfront to save $ 72 every month. $ 864 per year. It will take you until your 84th payment just to break even. That’s 7 years.

    Most mortgages don’t last 7 years before they’re either refinanced or the home is sold. Have you ever kept one mortgage for 7 full years? Most people haven’t.

    Granted, over the remaining 23 years, that $ 6,000 would have saved you a net of $ 19,782 in interest. Sounds nice. But a loan lasting all 30 years probably happens less than 1% of all mortgages.

    Get a new loan officer. Ask around for referrals to people your friends or family have used. You shouldn’t have had to have come to yahoo answers for this. Your guy is doing a bad job.

  3. Reply
    elmo o
    November 23, 2011 at 4:55 pm

    the buy down rate saves you big money if you keep the loan for very long.

    what you are doing is lowering your interest rate. the buy down is paying the lender to “loose” money. actually they count on you selling in 3 to 5 years, so they will recoup the lost interest payment by having the term of the loan shortened. when you sell the lo0an gets paid off.

    the prepayment resercves are for your taxes and insurance, so those become a credit you will draw from in dec and ap for taxex and mar and sep for ins.

    paying down the interest is a great idea, do it. 6k is cheap, depenending what the rate cut is. 1/2 % is great, anything else is fantastic. like going from 6% to 5.5%

    good luck

  4. Reply
    Amanda H
    November 23, 2011 at 4:58 pm

    You’re really paying 6K to pay down your loan. Think of it as a fee. It’s going to make your monthly payments lower by lowering your interest rate. It may be a tax deductible fee as the government often looks at it as “prepaying” interest that you WOULD have paid monthly otherwise.

    You’re buying down the INTEREST, not the LOAN, so your loan is the same dollar mount. DO NOT pay down the loan if you think you may sell or refinance in the next 1-3 years as it may not pay for itself.

    It’s all paid at closing, so you need to be prepared to bring that as a cashiers check at closing, unless you’ve included it by having the seller pay it.

  5. Reply
    Anthony Theriault
    November 23, 2011 at 5:43 pm

    Request a 6% seller concession from the homeowners…Most Realtors are willing to do whatever it takes to sell you that home…They are your negotiator…Being in the Real Estate business prior to going active duty has shown me a lot of the industry…I advise military members on a regular basis about Financing options. Talk to your Realtor….If you are not satisfied with what your getting into: get with another Realtor…

    Best Regards,

  6. Reply
    November 23, 2011 at 6:42 pm

    yanswerm is toatlly right on. you need to listen to them.

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