Take the time upfront to learn about mortgage loan costs and your choices for paying for them. That way, you’ll be better prepared to make the right decision when getting a mortgage loan in Utah.
Mortgages are complex, and getting a better deal on one part of the mortgage often means paying more on another part. For example, one mortgage may have a lower interest rate, but higher closing costs than another offer.
All mortgage loans include closing costs that you pay upfront, at the time of closing, or are included in your loan, and you pay over time, in your monthly mortgage payment. You can choose how you pay for these loan costs, depending on your situation.
Points, also known as discount points, is money or prepaid interest you pay upfront to your mortgage lender in exchange for a lower mortgage rate. Points will increase your closing costs.
Lender credits are money you receive from the mortgage broker or mortgage lender to offset your closing costs. You agree to pay a higher interest rate in exchange for a credit that is applied to your closing costs.
Points and lender credits let you make tradeoffs between paying more upfront or paying more in your monthly payments and interest rate. What’s right for you depends on your situation, how long you expect to be in the home, how much cash do you have available for closing, and the current mortgage rates.
The APR is a tool for comparing loan options with different interest rates and fees. It takes into account both the interest rate and the fees, so you can see which loan is less expensive over the full loan term.
In most cases, you still pay for the closing costs with a “no closing cost loan". Typically, you pay in one of two ways, both of these options may be worth considering depending on your individual situation.
Costs are rolled into the loan amount - increasing the loan means you pay more interest over time. In some cases, the increased loan amount can mean you pay a higher interest rate as well.
Costs are rolled into the interest rate - the mortgage lender is providing a rebate, known as a lender credit, to pay for the closing costs.
Sometimes, the seller may pay some or all of your closing costs. In order to do this, you and your real estate agent need to negotiate directly with the seller. Depending on the particular market conditions, sellers may be more or less likely to pay for your closing costs. Typically, sellers might agree to pay closing costs if:
You agree to pay more for the home - A seller will usually require a higher purchase price if they are paying for the buyer’s closing costs. For example, a seller might agree to sell the home for $250,000 and contribute $5,000 to your closing costs. But if you did not ask the seller to contribute to your closing costs, the seller would probably have accepted only $245,000 for the home. You’re still paying the $5,000, just as part of your loan instead of as closing costs.