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When you are going through the home buying process, the number of extra expenses that you may not have been expecting can be staggering. If this is your first time buying a home and you´ve never gone through this process before, it can be downright infuriating.
One of the unplanned expenses that many people don´t even know exists is called points. A point is one percent of the cost of your mortgage from the bank. A bank charges points the day you close on your new home as a way to offset their risk of loaning you money. Here are a few helpful tips to prepare you for paying points the day you close on your new home.
- Make sure your bank is being honest with you. The term "points" has gotten to be fairly well known, even by first time buyers, so banks have started calling the exact same fees by other names, such as origination fees or loan discounts, but they are the same thing. When you go to get your loan, make sure you ask if there are points due at closing and if your loan officer says no, make sure you ask if they simply call points by another name. If you feel like the bank isn´t being honest with you, shop around for another place to get your loan.
- Be prepared. All of your closing costs are due right when the name says they are, at closing. Sometimes, the closing costs can be tens of thousands of dollars, or even more depending on the type of loan you have. In some cases, banks will offer loan packages that take all of the closing costs and roll them into the mortgage itself. While this will save you a few bucks now, it will cost you dearly over the life of the mortgage since you´re now paying interest on your closing costs. Try to pay as much up front as you can so you pay less later.
- Know the laws in your area. A point is one percent of what you´re borrowing. If your mortgage is $200,000, a point would be $2,000. There are limits, however, to how much a bank can charge in points. If you think your banks´ offer is outrageous and you think they may be in the practice of predatory lending, report them to the local authorities or consult a realtor or lawyer for the laws in your particular area.
- Make sure you shop around. A mortgage, and the points that come with it, are just like any other business agreement you enter. Some companies are going to offer one deal and another company is going to offer another. You can shop around for months for a mortgage, just like you would shop around for a car or a piece of furniture. If you think a bank if offering you an unfair deal, don´t take it, shop around.
- Make sure you write separate checks for each, individual closing cost. The points you pay at closing are tax deductible and some of your other closing fees might be as well, depending on which fee and what area you live in. By writing separate checks, you have proof that you paid them in case an auditor comes sniffing around your tax return. Make sure you learn the laws in your area and find out what is tax deductible and what isn´t.
- Some banks are willing to lower the overall interest rate you pay if you pay more points up front. The general rule regarding this is that a point is worth 1/8th of an interest rate. So, lets say that your interest rate is seven percent. If you agree to pay a point, you can get your rate knocked down to 6 7/8th percent. It doesn´t sound like much, but depending on the type of mortgage you agreed to and the amount you borrowed, you can save a bundle by using this negotiation tactic. Make sure you crunch your numbers to find out how to get the best deal.
Understanding points can be tough, but they are a big part of buying a home. A bank is a business that is taking a risk on you and they need to protect themselves, but at the same time, you can´t let a bank take advantage of you. Make sure you know your way around points and other closing costs and you´ll be enjoying your new Sarasota home in no time flat.
GBrey |
