We know that the country has been focused on the government shut-down. We know that, now that it is over, many American businesses as well as private citizens have begun the road to recovery, and it’s going to be expensive. What was the price tag? Standard & Poor’s says that the shutdown “has shaved at least 0.6% off of annualized fourth-quarter 2013 GDP growth, or taken $24 billion out of the economy.”

Rest assured, Palm State Mortgage Company will keep watching the story as it unfolds, but today we shift our focus to some interesting facts you might not know about the mortgage industry. Today, we want our readers, clients and friends to know about closing cost rebates. After all, such knowledge could help you, as a home or business owner, as you defray the costs for the recent economical shut-down.

Closing Cost Rebates And Your Lender

There are different rules for different types of mortgage sources. Mortgage brokers and banks have different regulations. As a result, you might have seen that “some mortgage brokerage firms have begun advertising that they offer substantial credits to their customers — often in the $2,000 to $5,000 range per loan but sometimes more than $10,000 — that can be used to defray borrowers’ closing costs.”

Although this seems almost to good to be true, let’s look at the statistics:

1. A survey of 164 member firms of the National Association of Mortgage Brokers recorded that “they provided more than $69 million in closing-cost credits to clients last year, and are on track to pay out the same or more this year.”

2. NAMB estimates that brokers nationwide rebated upward of $2 billion in 2012. That sum certainly represents extensive savings for borrowers!

It can be difficult to think about abstract deals and large dollar numbers, So Kenneth Harney, award-winning columnist of The Nation’s Housing, consolidated numbers and regulations into a simple case study of one man buying a house. Let’s take a look at his story, and boil it down to the truth about closing cost rebates:

A Step By Step Story of Truth and Closing Costs

1. Charles W. Berryman shopped before he closed on a $295,900 mortgage to purchase a home earlier this year. It carried a 3 percent fixed rate for 15 years. He mortgage shopped at two competing banks and at Essential Mortgage Co., a large brokerage firm in his area. To his delight, Essential Mortgage Co., credited him $3,500 toward his closing costs.

2. The banks offered the same attractive 3 percent fixed rate, but no credits.

3. The sizeable closing-cost money allowance was a deal maker for Mr. Berryman, and he chose Essential Mortgage over the two banks.

4. Why was there such a big difference? “The brokerage firm, Essential Mortgage, was required by federal rules to rebate the money to Berryman. The two competing banks were not.”

5.  Basically, brokers do not lend their own money. They, like Palm State Mortgage Company,  shop among multiple creditors on behalf of borrowers. Brokers absolutely must “disclose all their fees upfront to applicants. They are not permitted to earn any more than the disclosed amounts even if the funding source they choose for a buyer at a specific interest rate will pay them a premium for the loan.” To put it simply, extra money must be credited to the loan applicant.

6.  In contrast, banks lend their own money. Their rules are different. They are “under no such requirements on premiums. Banks have the choice to offer an applicant a credit — or not — in connection with a given interest rate.”

7. The two banks interviewed by Mr. Berryman might have been able to defray part of the closing costs, but they did not offer, and Mr. Berryman did not know they might have any lee-way in the deal.

In the case of Mr. Berryman, what he did not know could have hurt him! What should the moral of Mr. Berryman’s story be for you, as a mortgage applicant?

Here is what Palm State Mortgage wants you to know: Do not fall into the common trap of focusing only on interest rate. Feel free to ask competing banks and mortgage companies about credits toward closing costs. Find out more about closing costs in one of our previous blogs.

At Palm State, it is our policy to help you review the details behind your mortgage: closing costs, rates, fees, monthly payments, and the cash need to close your dream mortgage.

About those Pink Ribbons

October has begun a serious trip into the Halloween season.  We hope you have not let the pumpkins and little goblins distract you from wearing those beautiful pink ribbons of hope and awareness. We invite you to visit the Breast Cancer Coalition, and see what their prophecy is for the end of Breast Cancer in seven years!