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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127814  
Subject: Re: Educating myself about home buying - need he Date: 5/2/2001 4:37 AM
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Hi AliFool,

1. We want to buy a house and we live in CA, so most likely will not be getting a conforming (under $275K) mortgage. Are there special plans or first-time buyer plans out there for jumbo mortgages? We will shop around for credit union rates, but are there any other places to go that are known for good deals?

My experience has been that most credit unions do not offer combo loans... so if you don't have 20% in cash to put down, plus all the other cash requirements, you will be stuck with PMI. Since they sell larger loans to their members, they get more rebates from the lenders, so they often have VERY attractive closing cost scenarios... but you get the short stick over the long haul by the PMI on a mnolithic 1st mortgage.

I would ALWAYS recommend having a good broker shop loans for you.. but it's no secret I'm biased (that's what I do!)

3. I've heard you need to have enough money in the bank for closing costs, plus whatever you're going to put down, plus some left over to live on. How would you determine closing costs -- is it a percentage of sale price of the home, or is it calculated on a case-by-case basis? Can you determine the ideal amount to have on hand just by the cost of house you want to buy?

Here's your likely cash requirements;
1) You'll need your down payment, whatever that will be,
2) Closing costs (unless you negotiate them to be paid by the seller and/or the lender... or a combo in conjunction with yourself,)
3) 1 year advance insurance premium (common for for 1st timers,)
4) prepaid interest from day of signing through 1st of following month,
5) 2-6 months impounds deposits for taxes and insurance (if necessary,)
6) 2-6 months liquid reserves (savings, stock, CD's, whatever liquid) to cover your full monthly PITI payments should you be unemployed or incapacitated at the beginning of the loan, (# of months required determined by how much down payment and your credit scores.)

To determine closing costs... first you want to know what the REAL closing costs would be if you had "X-Ray Vision" and could see behins the scenes.

For a $275,000 loan you'd have about $3,000 in 3rd party services (appraisals, title, etc.), and 1% in origination (the management of the whole ordeal.) Altogether, around $5,800, +/- $250.

NOW, you have the knowledge and the power to intelligently decide where you want these costs to be distributed. They can either be paid by you in cash, or by the seller (in which case they're passed on to you in the sales price, and you pay your mortgage rate interest on them,) or they can be paid by the lender (often advertised as no points loans, or no cost loans. These can be insidious if you intend to stay put longer than 15 years, as each dollar the lender contributes raises the loan such that you effectively pay 33% to 35% additional interest on that dollar each year for the duration. If the lender covers $5,000 of costs, you will incur and additional $50,000 of interest on the loan.)

In order to more fully understand what the impact of the different ways of covering these costs are, surf back among my posts on closing cost (I'm sorry I can't provide the link... it's within the last month, and I've done several pieces.)

Post back if you have more Q's.

All the best!
Dave Donhoff
Lic. Mortgage Broker
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