Information on Central Ohio and Columbus, Ohio home loans, closing costs, fees, points, insurance and government programs.

POINTS
A point is 1% of the loan amount charged to the borrower at the time of closing. For a $100,000 loan one point is $1,000. Points are used to lower the interest rate since they are simply a pre-payment of interest. A typical yield for one point will be to lower the interest rate by 1/4%. Not all loans require points and you should carefully analyze if it is appropriate for you, since it can be a large up-front expense. Points are pre-paid interest, even if paid by the Seller, and are likely tax-deductible. However not all borrowers will be able to take advantage of the deduction, depending on the particular Buyer's scenario. 

JUNK FEES or LENDER'S FEES
The amount of fees that the lender charges to process the loan. These can vary greatly from lender to lender and should be shopped to get the best deal (see below).

CLOSING COSTS
This is a widely used term that can mean different things to different people. The broadest meaning would include all funds needed for closing, except the Down Payment. But this can be broken down further as follows:

• Lender's Fees or Junk Fees. These are costs that the lender charges to process the loan. They would include terms like: processing, credit report, underwriting, tax prep, doc prep fee and tax service fee.
• Origination Fees. Some lenders charge an up-front fee for the right to loan you money. This should be shopped carefully. In some markets people are paying it and if they had shopped more carefully they could have found the same loan with no origination fee. A typical amount can be 1% of the loan amount, which makes this a significant expense to watch, generally lowers the rate by 1/4%.
• Appraisal. To obtain a loan the home must pass an independent appraisal ordered by the bank. The fee will depend upon the going rate in your market.
• Title charges. The lender has no control over these and they depend on custom and the market in your area. Expenses may include a fee for processing the closing, a title policy to cover the lender and possibly a title policy to cover the purchaser.
• Pre-paid items and escrows. The lender will require a few months reserves deposited by the buyer to cover insurance, taxes, and possibly the PMI. Technically these items are not closing costs.
• Conveyance Fees. The local jurisdiction will charge taxes for transferring title. The amount depends on your locality.
• Pre-paid Interest. At closing you will pay interest for the rest of the month. If there are five days left in the month then you will only pay for five days interest. If there are 28 days then you will bring a larger check to cover 28 days. If you are cash sensitive then you may want to close at the end of the month.
• Survey. The lender will require a survey of the property for the title insurance coverage.
• Miscellaneous expenses. These will depend on your particular deal. They would include items like: repairs, warranties, wood destroying insect reports and treatments, delivery fees, other inspections, casualty insurance for the first year as home owner's, insurance is paid in advance.

How to avoid PMI:

• Some lenders will self-insure and not require PMI. They cover the risk by increasing the interest rate. With a competitive lender the higher payment may still be less than the lower rate payment plus PMI. It also has the advantage of being tax deductible. The disadvantage is the rate premium is added for the life of the loan. These loans are very appropriate for low Down Payment borrowers who will be in the house 4 to 6 years, hence not likely to achieve 20% equity anyway.
• 80/10/10 loans. First mortgage of 80%, second mortgage of 10% and equity of 10%. Instead of PMI you have the second mortgage which is fully deductible.
• Put down 20% equity (sometimes 15% with some lenders with borrowers with excellent credit).

When your loan to value equals at least 20% (some lenders may require as high as 25%) you can petition to have the PMI removed. You will have to pay for an appraisal to verify the value. You can achieve this benchmark by putting more equity into the house and by having the home appreciate in value. You also need to make all of your payments on time. Making certain home improvements may also increase your equity and providing documentation to support the improvements.

RATE LOCKS
When you receive rate quotes most lenders will honor that rate if you close within the next 30 to 45 days. If you want to lock in a rate for longer than 45 days you will likely pay a premium. The longer the lock, the higher the premium.

If you are in contract and have a rate lock, some lenders will drop your rate if market rates drop prior to closing.  Typically there is a change related to this.

When building a house, the advantage of using the Builder's financing is they will give long-term rate locks without the large premiums. If you are custom building a home many Lenders will give a construction loan that converts to a permanent loan with the rate locked in at the beginning.

PRE-APPROVED vs PRE-QUALIFIED
A lender or real estate Agent can pre-qualify you. All it means is that someone has looked at your income, your debts and your credit and determined the amount and type of mortgage you could qualify for.

When a lender pre-approves you, it means you have made a formal loan application and taken the next step past pre-qualification. The approval may be contingent on verification of your income, down payment, appraisal and other misc. items. Being pre-approved may give you added strength when negotiating because the Seller will feel more secure about your ability to close. Being pre-approved does not prohibit you from shopping for rates when you are in contract and switching Lenders if you can find a better deal later.

MISC GOVERNMENT PROGRAMS

• Down Payment Assistance Grants. These are grants that the State or local government gives to borrowers for their Down Payment. They are available on a periodic basis and you must qualify based on income, purchase price, and/or number of people in your household. The income limit changes for each county and the availability is hard to predict. You would be well advised to check with a qualified Lender to see if you qualify and if the the funds are available. You can not reserve them in advance. Once you are in contract then you can apply. Be patient. It is a government program so approval can take around 45 days.
• First Time Home Buyer: This "bond" money is intended for first time home buyers only. It is used to lower your interest rate to a below market rate. You must qualify by not exceeding the income limit for your county. The income level for bond money is higher than Down Payment Assistance Grants.  Typically, if you have not owned a home for two or more years, you are considered a first time home buyer.