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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 127683  
Subject: Re: buying new home Date: 4/12/2001 10:23 PM
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Hi blowresh,

Congratulations on your new journey!!!

<<i am hoping to purchase a house for approximately $200,000 and will be able to put approximately in $20,000 for closing costs and down payment.>>
Of course you realize there are a lot of different ways to skin this cat (no offense to Garfield lovers out there...) Let's look, for a moment, at predictable closing costs and requirements...

A $200,000 loan should be do-able, at straight, honest, cash-closing costs around $4,500 - $5,000. That would include ALL costs and fees. If you choose, you can either get the seller to contribute the closing costs (which means they're folded into the selling price, which means you're actually paying them except they're financed into the loan,) OR you can choose to have the lender pay them (this is done by taking a little higher interest rate, which the lender compensates by contributing cash into the costs.)

You'll see a ton of ads, and hear a lot on these and other boards, about "No Cost" loans, loans where there are no lenders' fees, lenders that pay for your appraisals, etc. Let me be clear; IT'S ALL SMOKE & MIRRORS! Anything that appears to be free is tucked in somewhere else... and the money that you pay that is invisible will ALWAYS be more expensive than that which is out in the open. (The previous paragraph mentions when you have the lender contribute fees by your choice and in clear view... THIS paragraph usually occurs when the lenders stick you with higher rates than you would have otherwise been able to get so they can pay the costs they advertised as "free.")

You'll also need your prepaid interest and insurance, which will vary according to the month you close (the bank will generally want to have up to 6 month's worth deposited in escrows, depending on the bi-annual cycle in your area.) Check with your loan officer for these details when you're closer to the finish line... but for now budget $5,000.

That will leave you with about 5% down payment remaining... give or take a bit. This is fine. I recommend looking at an 80-15 combo that will avoid PMI (surf these boards for more on these.)

<<i was wondering the best choice of how to structure a mortgage including taking a loan for an extra $5000 and pay 5 points to save one percentage point.>>
Borrowing money on the way into closing is definitely a ba-a-a-ad idea, as it can shift your debt-to-income ratios significantly... especially if you're already tapping all reserves to do the deal. Besides, buying down the interest rates needs to be penciled out to see if it makes sense. You'll want to compare the relative monthly savings at the lower rate against the cash costs incurred to get that lower rate... and see how long the monthly savings take to add up to the amount spent to get them. This length of time should be far less than the total you expect to stay in the loan (at the home, or before a remodel refi or ?) A general rule-of-thumb is typically 3-5 years.

<<my wife is a teacher and i heard that there may be some special loans for teachers?>>
Indeed, there have recently been posts with links to sites with this info on these very boards, so I recommend surfing back amongst them (plus you'll learn a bunch of other cool stuff and get to snicker at some really silly conversations from time to time.) I personally have not dealt with any programs custom tailored for teachers... but I think I'd also recommend exploring your state's Board of Education, and perhaps the Teacher's Labor Union... as that would be a likely source for industry specific lenders. Of course another alternative would be to have an experienced loan broker do the searching and dirty work for you. In the end you'll want a loan officer to 'herd the monkeys' anyway, and I ALWAYS recommend getting the money details handled before you shop rather than later, when deadlines make a difference.

All the best!
Dave Donhoff
Lic. Mortgage Broker
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