Buyers, Are You Ready To Bundle?

I asked Gail Alm at Fairway Independent Mortgage in Rehoboth Beach, Delaware to comment on a question Buyers often ask,

“Can I bundle closing costs into my mortgage?”

http://www.dreamstime.com/stock-photo-real-estate-closing-costs-graphic-depicting-words-front-model-home-image37790550So, are you ready to bundle? Here’s what she said… “When Kathy asked me if you can bundle closing costs into your mortgage, the answer can be yes or no, depending on the circumstances of the mortgage and your personal financial situation.”

If you are making a new home purchase your loan officer will typically ask you how much of your hard earned money you are planning on bringing to the table to  include closing costs.  This helps us in discussing whether private mortgage insurance will be necessary or not.

Lenders believe if you have at least 20% of your money in the transaction as down payment then the risk of the loan defaulting is not very great.  Less than 20% down payment and the mortgage insurance (MI) is required by the lender.  The percentage of mortgage insurance is tiered so that someone with only 5% down will pay more mortgage insurance than someone with 15% down since they have less of their own money invested.

The real key is there will be closing costs and they will be paid from the money you are bringing to the table on a purchase.  Bottom line is, if rolling closing costs into the new mortgage keep your Loan to Property value (LTV) under 80% you can do it and keep money in your pocket.  It will make your monthly payment higher so you need to make sure you know exactly what that would look like from a cash flow perspective.

Now from a refinancing perspective, if there is enough equity in the property, you can roll the closing costs into the new mortgage so you do not have to bring money to the table.  Again, it will increase your monthly payment so depending on your personal financial situation, it may make sense and it may not.”

Closing costs are made up of a number of fees, taxes, prepaid items and costs.

http://www.dreamstime.com/stock-images-real-estate-agent-writing-flip-chart-woman-closing-costs-paper-office-image32198114There are certain fees that regardless of whether you have a mortgage or not, will be charged.  These would include:

Attorney’s fees – Delaware is an attorney state, requiring you to hire an attorney to work on your behalf and disperse the funds at settlement and record you as the new owner of the property.  These fees vary by attorney.

Transfer taxes – Sussex County typically has 1.5% of the sales price in a transfer tax to the county and another 1.5% of the sales price in transfer tax to the state. Often these are split between the buyer and the seller but not in every case. With new construction, many builders do not split the transfer tax.

Recording fees – In Delaware the recording of your new deed and mortgage (if there is one) is charged by the page.  This is typically $200-$350 paid to the County.

There are items that may be optional especially if you are not getting a mortgage. Most people get most of them to be sure they are protected:

  • Survey –  +/- $500
  • Pest Inspection – $75- $175
  • Home Inspection – $395 (depending on size of the home and other variables)
  • Home Warranty – $495 (depending on size of the home and inclusions)
  • Owner’s Title Insurance – based on property sales price

There are items that a lender requires:

  • Appraisal $400-$1000
  • Lender’s Title Insurance –based on loan amount
  • Flood Certification – $10-$20

Then there are loan associated costs:

  • Credit Report $25-$45
  • Origination fee $900-$1500
  • Hazard Insurance paid one full year in advance

The escrow account set up includes monies deposited with every payment to pay your annual taxes and hazard insurance.  Funds are deposited at closing to ensure when the bills are next due there are sufficient funds in the account to pay them.

  • Typically 3 months for insurance
  • Taxes are determined by when you close and when they are next due.

The only settlement or closing costs you can deduct on your tax return for the year the home was purchased or built are Mortgage Interest and certain Real Estate (property) taxes. These can be deducted in the year you buy your home if you itemize your deductions. For additional tax information for homeowners, please see IRS Publication 530.

Any Questions? Don’t hesitate to call or email Gail –

GailGail Alm, Mortgage Planning Specialist
NMLS ID 150812
37156 Rehoboth Avenue, Rehoboth Beach, DE 19971
Office 302-260-7088 | Mobile 410-868-0423
gaila@fairwaymc.com | www.gailalm.com