If you’re a first-time home buyer, here’s what’s going to happen.
You’ll go online and google every search term:
“down payment”
“30 year fixed”
“15 year fixed”
“fixed rate vs. adjustable rate”
“conventional loans”
“FHA”
“APR”
“points”
“earnest money”
…etc, etc.
Four hours and two cups of coffee later, it finally hits you… You’re officially confused. Because the home buying process is no walk in the park. It’s more like treading down a dark alley while clutching your purse with both hands.
Like watching a movie on Lifetime when you know somethings about to go down.
It gets worse.
Frustration sets in and now you’re terrified you might never figure any of this out. Until… You discover “the shortcut”: Rate shopping.
Boom, problem solved! All you have to do is compare interest rates. Easy peasy.
Well, here’s the part in the Lifetime movie where — out of the dark corner of the alley emerges a sinister shadowy figure. His grin is stretched ear-to-ear akin to Joker’s face… or is that just your mind playing tricks?
One thing is 100% for certain – his eyes are locked onto YOU like the red laser dot of a sniper.
So here you are, comparing interest rates…
The further down you scroll, the higher the interest rates get. Easy enough – just go with the top choice with the lowest interest rate. What’s the worst that can happen?
This is the part in the movie, where you catch a quick glimpse of the shadowy figure’s face, split second before one of his hands in a tight, tar-black, leather glove grapples your forehead from behind – suddenly you sense the icy touch of a sharp steel blade against your jugular…
You go ahead and settle for the top choice with the lowest interest rate.
Game over. There’s an abrupt muffled cry before the camera slams the ground. The last few frames of footage are fixed on the all too familiar swelling puddle of molasses-thick liquid, slowly growing larger in size.
Most first-time home buyers stumble through that same dark alley.
71% of home buyers under the age of 64 settle for the mortgage with the lowest rate, according to a study done by Zillow.
It’s not until you get to the end of the home buying process when you encounter that blade-wielding serial killer, lurking behind the dumpster in the alley: Closing Costs.
These are some of the out-of-pocket expenses that are due at closing:
- Underwriting fee – $300-$900
- Processing fee – $300-$900
- Credit report -$20-$40
- Application fee – $100-$350
- Lock-in fee – $100-$300
- Loan origination fee – 0-1% of the loan amount
- Tax service – $50
- Wire transfer fees – $25
- and on and on…
The list of fees and dollar amount varies from lender to lender. It’s common in mortgage lending to tack on extra closing fees. What you’ll find is some lenders will charge an extra $3,000, $5,000 or more for closing expenses.
So even if the interest rate is a quarter to half a percent lower, the extra closing fees will cost you a small fortune after all is said and done.
This is why almost every major lending publication is pushing low interest rates. Because they make up for the low rates on the backend with extraneous fees wrapped up in closing costs.
“But what about APR?”, you ask. “Doesn’t APR include the interest rate plus closing fees?” Not necessarily.
It’s tricky because lenders are not required to include ALL the closing fees in their APR. So you can’t rely on APR alone to reveal the true cost of your mortgage.
The simple solution is to request a personalized closing cost quote. Take a note from seasoned home buyers and never rely on interest rates or APR to make an informed decision.
Quick FYI: banks are not required to disclose what they make on your loan. I don’t know about you, but I’d go with someone who has FULL transparency — especially when it comes to buying a house!
P.S. If you like this post, share it and spread the word. If you’re looking for a home in Kentucky, we’ve simplified the home buying process and helped so many first-time buyers make informed decisions …with, of course, full transparency.
Angie is a Mortgage expert writer and recent mother of two. When she’s not pecking at the keyboard bringing you all that great info — she can be found in her backyard hot-tub, deep in action packed fiction novels, or playing catch with Joey, her brown lab.