Homebuyers, you will have to spend roughly $1,500 or more, upfront, just to learn if the escrow on the home you are attempting to buy and its finances are going to close.
Is there any way to protect your hard-earned money in the event escrow falls apart?
In a word, yes.
Today we’ll dive into what these potential charges look like.
In general, the money you often put out is for the loan approval: We’re talking about the deposit, home inspection and appraisal. There may also be miscellaneous charges like termite inspection and fees to print HOA documents.
Credit report
The first thing required is a credit report. Soon, that credit report could cost as much as $100 per individual and $200 or more for a married couple.
Broken down, it looks like this: FICO, in certain instances, will charge a basic $4.95 fee plus $33 per credit bureau per borrower. So, for the married couple, that amounts to three bureaus at $33 each for two borrowers costs $198.
Some lenders don’t charge for the credit report. Others will eat the credit report fee if the loan doesn’t close. Some will charge you upfront in the pre-approval process, regardless of whether the loan closes or not.
All things being equal, go to the lender where you don’t have to pay for the credit report. If the lender that charges for a credit report has a better mortgage product or better terms than the one that doesn’t charge, then just pay the freight. The mortgage benefit will offset the credit report charges.
Earnest money deposit
If the purchase closes, then your “earnest money” deposit will get credited toward your down payment. So, you are not really spending money. It’s a good faith deposit.
That said, you should still be judicious about it because if you get into a dispute with the seller in the middle of escrow, both parties must agree to release the deposit back to the buyer. It’s common practice to offer 3% for such a deposit.
My suggestion is to offer 1% or 2%. If the agent wants a 3% deposit badly enough, he or she can always make a counteroffer.
Inspection
Home inspection prices often depend on the size of the property. Let’s assume $650 for the average home.
There’s not much you can do about the inspection fee. Sellers typically never pay for the inspection, but it doesn’t hurt to ask. You must get the inspection done for your own protection. Be sure to shop for quality of service and pricing. Your real estate professional should have a list of reputable property inspectors.
Appraisal
Appraisal prices vary from $600 up to about $900. You might be able to get by with a desktop appraisal, which means reviewing the property and the comparable properties without a physical inspection. That cost might be $350 or less. You might also receive an appraisal waiver.
Let’s assume you are paying $650 because you didn’t receive a waiver or a desk review alternative.
But first, always be sure to have the appraisal scheduled after the home inspection report is completed. Why? What if the seller refuses to pay for repairs discovered in the inspection?
In the event you decide not to buy that home because of inspection discoveries, or the seller fails to pay for repairs you demand, you just saved yourself the $650 appraisal cost.
What can throw a monkey wrench into this is a very short escrow period, say 15 days. Agreeing to a short escrow will likely preclude you from waiting on the appraisal order.
Other costs
Other charges include termite inspection and HOA documents.
Sometimes the seller has already had a termite inspection and report available for you to examine. In other cases, it might be up to you to pay for the termite inspection and report. The cost is roughly $120. Sometimes termite inspection companies will waive the inspection fee in return for any required repair work.
Condominium documents are another tough one. HOAs vary in the amount they charge to provide documents and fill out Fannie Mae’s required forms. Charges are as little as $350 to as much as $900 when adding something like a rush fee.
If you find yourself in the unfortunate position of cancelling escrow or falling out of escrow, you will see these charges again on the next property. Every penny you can save by not spending the money counts.
Freddie Mac rate news
The 30-year fixed rate averaged 6.27%, 3 basis points lower than last week. The 15-year fixed rate averaged 5.52%, 1 basis points lower than last week.
The Mortgage Bankers Association reported a 1.8% mortgage application decrease compared with one week ago.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $806,500 loan, last year’s payment was $90 more than this week’s payment of $4,976.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.25%, a 15-year conventional at 4.99%, a 30-year conventional at 5.625%, a 15-year conventional high balance at 5.5% ($806,501 to $1,209,750 in LA and OC and $806,501 to $1,077,550 in San Diego), a 30-year high balance conventional at 5.99% and a jumbo 30-year-fixed at 5.99%.
Eye-catcher loan program of the week: A 30-year mortgage, fixed for the first five years at 5.375% with 30% down payment and 1 point cost.
Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com.