Loans Answers

Closing Costs

Question: I’m interested in figuring out just how much money I’ll need up front to buy a house. Supposing I want to buy a $150,000 house with 10% down, I know I need at least this much:

10% down: $15000 e. g. 1 interest point $ 1500 application fee ~ $ 300

What other costs are there? How much more will the bank want up front. My big concern is to make sure that I have enough money before I bother to apply for a mortgage. About how much money will the bank want you to have “left over” before they approve your mortgage application?

One other question. I understand that the bank wants to make sure that the money you have is really yours, so they require that you have it for at least three months before they will acknowledge it. I also gather they don’t like money in mutual funds. Why is this? Should I move my saving from a bond fund to a regular old savings account and wait three months before applying for a mortgage?

Thanks for reading this. Any replies would be greatly appreciated.

Answer: It is very important that you find out *exactly* what is required of you. In our case, we found that in order for money we had received as a gift be counted as “ours” and therefore not need a gift letter, we not only had to have it for three months, BUT, we had to produce three months worth of bank statements that showed the higher balance, but *not* the deposit. In practical terms, this meant having the money in the account more like four months. I recommend that if you can do this, do not tell the banker or mortgage broker that the money had been a gift. I made that mistake by accident. Even though the money had clearly been ours for several months by the time we applied for a mortgage at the end of May (having received the gift check in January), the mortgage broker called up my mother long distance and hassled her about doing a gift letter, saying that we could not get the loan without it. In my opinion, you should not hesitate to tell the mortgage officer anything they need to know, but don’t volunteer anything *extra*. They are NOT your friend no matter how nice the person may seem. It is business. You may decide that the guy who seemed so nice one week is the scum of the earth by the time you’re done. At least, this was our reaction.

Some people may disagree with me, but if you are new to the amazing list of costs that go into buying a house, like annoying things like $40 for a courier fee when you know that a cab would take the bank envelope across town for less, etc., try *hard* not to plan every amount down to the last $10. You may find, as we did, that at closing, suddenly various costs are a few hundred dollars more than the so-called “good faith estimate” (HA!). We complained, but those lawyers are tricky–we could buy the house and pay the fees or not buy the house and lose $6800 in escrow funds and face who knows what kind of legal action for backing out. To us, paying $400 for the bank attorney was bad enough, but it was outrageous to find out at closing that, in fact, it would cost us $550. When we complained, the little creep had the audacity to say that he was authorized by his firm to charge us up to $100,000 for his sevices! Our lawyer didn’t think the extra $150 was worth getting upset about, so there wasn’t much that I know of that we could do.

Even though we *very* much did not want to start out with extra debt for appliances and other new purchases, I had a bad feeling that we might be surprised at closing. So, even though we had the money to buy appliances with cash, we bought a refrigerator and other big items with credit cards with the idea that we would pay off the entire bill when we got it, but IF we got surprised at closing, we would have the money and could (sigh), pay off the credit card bills over time.

I highly recommend that you check all figures on the good faith estimate and any other place you see monetary numbers, even if you see someone else using a calculator. If you are fairly good at doing numbers in your head, at least estimates, *at least* do that. I found that the little so and so of a mortgage broker was going to charge us a second time for the credit report. If you are paying a lawyer to represent your interests, then trust that person with some caution. Trust whomever you might be buying a house with, but don’t trust anyone else! Don’t trust any other lawyer or Realtor who isn’t *expressly* on your side.

One of the hardest things, I think, about buying a house is the somewhat odd mixture of emotion and business. A house deal is often very emotional for both the sellers and the buyers and it can be quite difficult to *stop* being emotional and think rationally.

For the first time buyer, my advice would be long, but would boil down to:

1) No matter how much you love the house, remember that it is a business deal, you are responsible for taking care of your own interests and must be willing to walk away from the deal and

2) Unless you have become very well educated about buying a house in *your* area at *that* time, buying a house is going to cost you more than you think it will, possibly a few thousand more than you think. Our closing costs were four *thousand* more than I expected. Fortunately, I had had a gut feeling that told me the mortgage broker’s estimate of closing costs were way too low, so I did budget that extra $4,000, “just in case” and

3) Be ever vigilant regarding everyone and every detail.

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