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Should I pay higher closing costs for lower interest rate?

I am a first time homebuyer and suddenly overwhelmed.

I have been calling banks for quotes and it seems the ones with the lowest interest rates have higher closing costs. 

for example i was quoted 5.375% and the closing costs were 3% but another bank quoted me 5.65% and stated their 'bank fee' was $938 and said they didn't have any other fees.

i know you really don't know what the 'fees' are until getting a good faith estimate but what is the general rule of thumb? 

i am making a 135,000 loan with 15,000 down and i have 750 credit score.

Thanks
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January 21 2009 - Fort Collins
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Profile picture for Who Cares but Me

Maybe now you can hear everyone....

[content removed by moderator for being a personal insult]

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January 21 2009

Laura,

You new so I will be gentle.

Spamming is frowned upon and against zillow policy.  Offer advice but avoid suggesting posters call or e-mail you.  If they want to reach out to you they will click on your profile.

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January 21 2009
Laura, I see you are new, but do you see anyone else posting their contact information?  Zillow does not allow nor tolerate spamming or self promotion. Please refrain from it.  Join in the discussions and give good honest advice, but don't sell yourself.
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January 21 2009


Paying a lower rate with higher costs is usually the best way to go.  There are some great websites with amortization calculators for you to actually see your savings.  You will generally save thousands more off your interest than you would ever pay in closing costs.  5.375 % though does seem high for where rates are today. I would like to offer you a free quote as well just based on your loan specifics to see if I can beat that for you.  Either way, good luck with this.  Don't let it overwhelm you.  Owning your own home for the first time is a great experience.  Don't let this ruin it.  Take care.

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Laura Thornton

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January 21 2009
Profile picture for Who Cares but Me
Michael,

Seriously, are you kidding me?  You try to make all your clients own investment properties?  I'm sure glad I'm not a client of yours.  Especially in today's market, people are losing jobs left and right, how is a renter going to pay rent when they have no job?  Then it falls onto the owner who has their own personal residence mortgage to pay for in addition to whatever other rentals you suggest they have.  Eeee gads...
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January 21 2009
Since you are purchasing I would look at obtaining the maximum seller contribution 3 to 6% (depends on loan program) to help pay your closing cost. This would include buying down the rate. I generally feel buying down the rate makes sense. The repayment period will vary. But I also try to make all my clients own investment property, by keeping what they currently own and convert to rentals when upgrading. So a lower rate will pay off long term. Also the seller paid points would be deductible for you in the year of purchase.
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January 21 2009
zaeli22--


To compare the two offers take the sum total of fees contained in section 800 at the top of the good faiths you are recieving. Different lenders have different names for the various fees but it all boils down to the total amount of fees in that section doesn't matter waht they are called. If the difference in payment is worth it to you pay the fees and take the lower rate.  Good Luck
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January 21 2009
Michael,
If it always makes sense to pay a higher rate why even look at a break even?
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January 21 2009
The longer you intend to stay in the home or mortgage the more it makes sense to pay higher closing costs for a lower rate.  If you will only be in the home for a year or two it would make more sense to pay a higher rate.
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January 21 2009
 
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