Question on closing costs???

Question

My hubby and I are building a new house and so are our friends. We both have used the same realtors, builders and the same bank for the loan (just different loan officers at the bank). They told us that they were just adding thier closing cost to their loan. So my hubby and I called the bank about it to see if that was an option. Our loan officer told us no it wasnt that we would have to bring some money to the table when we close. Does anyone know why this would be? We have the same loan ( a regular conventional loan) and both are getting 100% financing. We have a better credit score(theirs is 596 and ours is 632 and they are paying 7.75% intrest rate and we only have a 6.3% rate. Im just confused but for all I know they could not be telling the truth about it all. Should I check with their loan officer to see about getting closing cost add to our loan or just pay them at the time of closing? Which is a smarter way to go?

Answer 1

It sound like your neighbor decided to go with the higher interest rate in exchange for cash back at closing to cover the closing costs.

This is common for many lenders to offer different rates. Lower rates have higher up front points and fees.

You should ask your lender for their rate and fee options.

Answer 2

From sitting in the Loan officers chair I can tell you that the big difference in rate is causing you to bring some cash to the table and your friends is being picked up either by the bank or by the loan officer himself through a broker credit. He's making enough off of them that he credits a small portion of it back to the closing cost. This is a common practice especially for repeat customers or special situations. I might do it to make sure a customer is getting exactly what I promised them. If I gave them my word that they would bring $500 to closing and I get the numbers worked out and they're going to have to bring more than that if I'm making enough on the loan I can credit a portion of my pay back to the customer to garantee satifcation which for me is worth way more than a few hundred bucks. One referal is worth thousands. The bank pays based on rate and risk. The higher rate we can lock someone in at the better it pays. This scale adjusts based on risk. In your case your friends are in a different risk level that you.

So lets say the bank's break even point for them was 7% for every 1/8% over that they will pay the broker about 1/2% of the loan amount. So at 7.75% he might be making 3%

Lets say your new house is $350,000 x 3% = $10,500 LO's cut.

Now he will often have to pay his broker, a processor, for other office expenses, and misc fees out of this. But still it's easy to see how he could credit a portion of it to your friends without missing a little.

Lets say your LO promised you the lowest rate possible because of your good credit this is a good assumption. So he's only making 3/4%

$350,000 x 3/4 % = $2625

Now he has the same other expenses to pay and still has a mortgage of his own to pay out of whats left. This doesn't leave as much to share with you. Sorry but thats the way it works.

You can get a higher rate and bring nothing possibly but otherwise pay it up front and keep your rate lower.

Answer 3

The only way this could be is if your friends are getting a concession from the selling side meaning they arranged for the seller to pay some or all of their closing costs.

Say your home costs $200,000. You and your friend are financing that much (100%) and are being charged to borrow the money. Say the cost to borrow money is $5,000 that means you'll need to come up with that money ($5,000) unless the builder picks up those costs for you (concession).

Answer 4

Bottom line, you are the customer. Tell them you will switch to your friends lender if they do not accomidate your needs. Lenders make money off the the loan and get a kick back by locking you into certain loans. This person may be trying to get a little more off the deal.