Home Buyer Seminar - Let’s Go Buy a House!
If you are in need of Mortgage Financing for Real Estate in Florida, and would like to take a home buyer seminar in the comfort of your own home, you have come to the right place.
Preston Ware - 20 Years Experience
NMLS License # 216170
My Direct Line (561) 329-0075
Florida Home Buyer Seminar
This information is for everyone. I am licensed to do business in Florida
Please use this page as a tool to help you prepare yourself for your a purchase of a new home.
As your trusted advisor, it is my job to anticipate potential questions and answer them as best I can as early in the process as possible. Through the years I have learned what customer’s main concerns are and how to prepare them for what to expect in each phase of the home buying process.
Please read this through. This information will bring on more questions which I will answer individually. This process will ensure that you are an educated consumer and are fully prepared to go find a great deal.
Best wishes & happy house hunting!
How do You know when to get pre-approved?
We often hear about getting pre-approved for a mortgage. A good realtor won't waste his or her time with you until you are either pre-qualified.
Pre-Qualified - Getting a pre-qualification letter happens when you are thinking about buying a home and you are ready to start driving around with a realtor. I help you with this step by reviewing your income, assets, credit and debts and make sure everything is in order. I will pull your credit. During this phase i will create a good faith estimate and determine what are the limits of your spending.
Pre-Approved - I consider you pre-approved when I take your file and run it through my automated underwriting system and I receive an approve/elligible. On day one, I will submit to either Fannie Mae, Freddie Mac or FHA and get a feedback on your case file that will tell us yes, no or maybe. Assuming the information provided is correct and we have a feedback of accept you are pre-approved and should be good to go. Of course we will have to submit your findings and your actual W-2's and Bank Statements to an underwriter who will appove your loan.
A Commitment Letter - A Lender issues a commitment letter after a loan file has been submitted to an underwriter and conditions have been cleared. All of the facts of the file have been verified including title work and an appraisal. I am able get most loans processed in 30-45 days so we are usually running well ahead of the time frames on commitment letters and we try to keep all sides happy with quick time frames.
Table of Contents
So You Want to Buy a House
Fundamental Reasons for the Advantage of Home Ownership
The Four C’s of Lending
Are You Pre-Qualified, Pre-Approved or have a Conditional Approval?
Loan Mortgage Programs
Conventional Loan Programs
FHA and Other More Aggressive Loan Programs
How Much Home Should You Buy
Improving Credit Scores
The Home Buying Process
a.) The Initial Fees Disclosure & The Good Faith Estimate
b.) Items Requested Checklist
c.) Verifying Income and Assets
d.) The Home Inspection
e.) The Appraisal
f.) The Closing Agent
g.) Loan Closing Costs
h.) Types of Insurances
i.) HUD Settlement Statement
So You Want to Buy a House
I am here to help you. If you have a job, reasonable credit, 3.5% to put down as a down payment or a family member who is willing to gift you 5%, you are in a position to go buy a home using FHA financing which is probably the most popular loan program in today's market. I believe about 40% of all financing in real estate today is FHA.
Why Should You Go Buy a Home?
The reasons are many but I will list a few:
1.) Because you Can! Home Ownership is a Great feeling! Express Yourself. Secure your Future. Tell the Landlord to take a hike.
2.) Tax Deductions: I have an elaborate form later in this package that shows some numbers but in general home ownership will afford yourself a wonderful IRS deduction in the form of a mortgage interest deduction. Also with each payment you come one step closer to owning your property free and clear. Why pay the land lord when you can pay yourself.
3.) Price Appreciation: Florida has suffered an unprecedented waive of price depreciation and most believe the hard days are behind us. Take advantage of 40-50% discounted home prices! It is like buying a stock when the price per share is low, very low below par. Currently if you compare the home prices versus the cost to build the same house new, you will see the potential room for capital gain.
4.) Owning your own home will allow you to create a better home environment for you and your family. No worries about a pesky landlord or if he wishes to raise the rent or tell you what you can and cannot do.
The Four C’s of Lending
When I started in the mortgage business way back when I would quite often hear mentors talk about the four C’s of lending. It is an easy way to remember mortgage lending. The four C’s are:
Credit: In today’s world lenders like to see at least a 640 middle Credit score. Although I do have sources that will look at a 600 score or better with three established trade lines. This means we pull a merged credit report from all three of the main credit bureaus Trans Union, Experien and Equifax and use the middle score of the three. Those trade lines can be a: car loan, student loan, credit card, rent payment, phone bill, electric bill, car insurance bill, cell phone bill, cable bill or other alternate forms of credit. Rent is very important. If you are renting from an individual we will need to see cancelled checks for one year paid on time. If you are renting from a large management company running a rental complex, there is a form that we can fax. In all cases of credit, we focus on the most recent 12 months of payments. If you feel you do not have adequate credit I have seperate pages on my web site for credit repair and establishing new credit.
The collateral is the home that you are buying. It needs to be functional. Cosmetic blemishes are O.K but if the home lacks the basic functional requirements then the loan becomes a rehab loan which is a different loan product. As a rule it is smart to get a home inspection in the beginning of the process to ensure you are not buying a lemon. Also the home inspection can be used to ensure a lower homeowners insurance premium. Some insurance agents will not release a binder unless they have seen the 4-point home inspection.
Your Capacity is your ability to earn income. I no longer have a long list of sources that will look at a loan where we do not document income. For the most part I will need to see a few paystubs and W-2’s or 2 years tax returns if you are a self employed individual. It is important that you have worked in the same line of work for at least two years. Changing jobs is O.K as long as there is a thread between the type of work that you are doing.
Capital is your savings or gift money that will be applied towards the purchase of the property. We will need to document this with bank statements as to where the money came from and how much you have in reserves. Sourcing the money for closing is an important step in the home buying process. If you are the type that likes to keep your money in your mattress, it probably is a good time to go put it in a bank somewhere so we can verify it.
Are you Pre-qualified, Pre-approved or have a Conditional Approval?
Before you begin to shop for a new home, we should discuss how much you can afford and where you would like your payment to be. This will give you piece of mind and put you in a better position as a buyer. This is also when it is important to understand the distinction between being pre-qualified, pre-approved or have a conditional approval.
I will collect information about your credit, income, and assets. We’ll look at your credit profile and assess goals for a down payment and get an idea of the different loan programs that would work for you. I will issue you a pre-qualification letter indicating the amount you are pre-qualified to borrow. This is something that your realtor will use to show any potential listing agents to demonstrate that you have done your homework. When I issue a pre-qualification letter, I discuss your goal and pull your credit. At this point we have not verified the facts of your file such as income and assets but we are proceeding forward assuming what you are saying is correct.
It is important to understand that a pre-qualification letter is just an estimate of what you are eligible to borrow, not a commitment to lend.
Getting pre-approved for a mortgage loan gives you competitive advantage when the time comes to bid on a home because you have been approved for a loan for a specified amount by a lending institution.
To get pre-approved, I will review your mortgage options and submit your application to the program that best meets your needs. I submit your loan on-line in the form of automated underwriting. This is when we submit the facts to an “underwriting engine” at either Fannie Mae, Freddie Mac or FHA. The online system will give us a feedback as to whether you are approved, referred or referred with caution. I can tell you at that point, Yes, No or Maybe. Approve eligible is a yes, Refer is a maybe, Refer with Caution is a No.
Once the application package is sent to a bank I will receive what they call a conditional approval. This means an underwriter has looked at all of your information and issued a commitment to lend assuming we satisfy the remaining outstanding conditions. Sometimes at this point borrowers employ selective memory when they hear the word “approved”. It is important to remember that we satisfy the conditions set forth by the underwriter in order to get your file “clear to close” and ready to “fund”. Sometimes these conditions include satisfactory explanation letters, a satisfactory appraisal or proof of receipt of child support or alimony or something as simple as a verbal verification of employment. It is the job of the mortgage consultant to explain each open condition to you so that you know where you stand on your file. Some conditions are out of your control like the appraisal.
It is better to deal with the pre-approval process as soon as you can. I have prepared a first time homebuyer video series http://www.prestonware.com/seminar that is the perfect way to start understanding what needs to be done if you are pondering a home purchase.
Additionally, I have created a mortgage process series http://www.prestonware.com/Themortgageprocess that details what goes on after you fill out the paperwork and we submit your loan to the bank. It is my job to get you the best interest rate and deliver the absolute best service and this is one way that I do it.
If you have issues with credit, I can also help you settle old debts. Credit is more important than ever so it is important to know how your profile looks. More on this later.
Here is an example of what my automated underwriting looks like after I run your deal on line: This borrower had a 760 middle credit score:
Every single mortgage application is run through an automated underwriting engine. Fannie Mae, Freddie Mac, FHA, USDA all have their own underwriting engines and guidelines that weigh the strengths and weaknesses of your file. Credit, job history, income, equity in the transaction, reserves, collateral are all taken into account automatically to weigh the decision of your loan file.
The underwriting engine will deliver a verdict on your file. It can be Approve/Eligible for Fannie Mae or Accept for Freddie Mac or if it is not too sure about your deal, it will say "Refer Eligible" or "Refer with Caution" or "Refer".
To make my job more exciting and difficult, each lender has their own proprietary front end system where they can scrub the Fannie Mae or Freddie Mac parameters and replace it with their own. A typical example was Wachovia Bank not too long ago. Where Fannie Mae would allow a debt rattio of 55% total debt ratio, Wachovia had an "overlay" of 50%. This may sound tough but they have a right to do this because it is their money.
It is my job to represent the details of your transaction properly when I submit your file on line. It is the lenders job to validate the information I have provided. We validate by showing proof of the numbers I have submitted. We prove income with paystubs, assets with bank statements and credit with a credit report. The bank will examine the validity of the contract as well as study all of the comparables on the appraisal. Many of the underwriting problems in today’s market are associated with the appraisal in a declining market.
There is a lot of talk these days about it being so much more difficult to get a loan. This is true only to a certain extent. Yes, many aggressive loan programs have disappeared but we still have plenty of "bread and butter" programs available for the typical customer who can prove income. Where the old minimum credit score for Fha was 580 now it is 640 but I do have sources that are willing to look at less than 640 credit score files on a case by case basis.
I have included sample findings of a typical file run through Fannie Mae. (DU) The findings will tell us what we need to include to document your loan. Sometimes this will be one or two years of tax returns if your file has a high risk level or if you are a really strong borrower the system will only ask for a year to date paystub and a verification of employment.
Here is an example of automated underwriting findings: Approve / Eligible
Lender Loan Number
80.00% / 80.00%
Housing Expense Ratio
Total Expense Ratio
Total Loan Amount
The risk profile of this loan casefile appears to meet Fannie Mae's guidelines.
This loan casefile appears to meet Fannie Mae's eligibility requirements.
This recommendation is valid up to a note rate of 5.625 percent.
The following risk factors represent strengths in the borrower's loan application:
Total Expense Ratio
VERIFICATION MESSAGES/APPROVAL CONDITIONS
This loan is also subject to all other lender specified conditions and must comply with all applicable federal, state, and local laws and regulations.
Based on the credit report obtained through Desktop Underwriter, this loan must close on or before 10/28/2009. All verification documents must be dated within 120 days of the closing date. For new construction, documents must be dated within 180 days of the closing date.
If there is a home equity line of credit secured against the subject property, the maximum allowable HCLTV is 95 percent. The HCLTV calculation is based on the maximum credit limit of the equity line.
The Adverse Market Delivery Charge will be applied when this mortgage loan is delivered to Fannie Mae. Refer to the Selling Guide and Loan-level Price Adjustment (LLPA) Matrix and Adverse Market Delivery Charge (AMDC) Information on efanniemae.com for specific details.
DU identified the following tradeline(s) as disputed by the borrower and did not include the tradeline(s) in the credit risk assessment. The lender must verify the accuracy of the tradeline(s) by determining if it belongs to the borrower and by confirming the accuracy of the payment history. If the tradeline does not belong to the borrower, or the reported payment history is inaccurate, no further action is necessary. If the tradeline does belong to the borrower and the reported payment history is accurate, it must be taken into consideration in the credit risk assessment. To ensure it is considered, the lender may obtain a new credit report with the tradeline no longer reported as disputed and resubmit the loan casefile to DU, or the lender may manually underwrite the loan. If the tradeline is a mortgage that was past due by two or more payments in the last 12 months, or a foreclosure that has been filed within the last 5 years, the loan casefile is ineligible for delivery to Fannie Mae.
self-employed income must be supported by one year's signed personal tax returns if it will be used for qualifying purposes. Provide all tax schedules and written permission to request tax returns from the IRS. A minimum of 6 months self-employment income must be reported on the latest tax return. Refer to the Selling Guide for additional information.
income must be supported by a paystub and a telephone confirmation of employment, or by a standard Verification of Employment (1005). The paystub must be dated no earlier than 30 days from the application date and it must include at least 30 days of year-to-date earnings. In lieu of obtaining the telephone confirmation, an additional paystub dated within 30 days of closing may be obtained.
Verify the net rental income or loss with the borrower's most recent signed federal income tax return (Pages 1, 2 and Schedule E). A copy of the current lease agreement may be used only if the property is not on the Schedule E because it was acquired subsequent to filing the tax returns. If the property is currently the borrower's primary residence, a fully executed lease agreement, receipt of a security deposit, and documented equity in the property of at least 30 percent must be provided. If the total expense ratio already includes the entire rental property payment (i.e., income from the property not considered), no documentation is required. Net rental income is not allowed on second homes and should not be used for income on the subject property. Refer to the Selling Guide for additional information.
Assets totaling $49525 must be verified. From the liquid assets listed on the 1003, at a minimum verify those accounts that are needed to satisfy this amount.
Mortgage Loan Programs:
Conventional Financing Fannie Mae/Freddie Mac Good/Excellent credit with at least 10% to put down on the property. Typically 80% or less refinancing
FHA Options Purchase 96.5%financing, 95% with a 5% gift, 97% Rate and term refinance, 85% cash out Refinance
FHA Streamline Excellent program fro existing FHA customers. We can do a loan without an appraisal just as long as there is no cash out and the new loan is less than the old loan. Great loan for folks who are upside down on the value of their home.
USDA 100% financing for customers who wish to purchase in rural areas. existing USDA customers can refinance with the same program
H.A.R.P(Refi) Great loan program for Fannie mae/Freddie Mac customers who had equity in their homes but lost it due to falling home values. This program has two options. one that goes to 105% and another that goes to 125%. If your initial loan had PMI we need to run the deal on line to determine if the new loan requires PMI.
AdjustableRates Adjustables rates are amazingly low right now. These adjustable loans have very low margins unlike the nightmare adjustable rates associated with the sub-prime meltdown that took place
SuperJumbos I have access to amazing jumbo and super jumbo pricing. When dealing with loans this size it is very difficult to find good fixed rates but the 5,7 and 10 year adjustables are priced very low. Jumbo and super-jumbo customers should stay on top of pricing because there is so much potential for savings involved
$100 Down Program This is an amazing loan program sponsored by HUD for customers who wish to purchase FHA owned foreclosures. there is not a huge list of potential homes to buy but I have a convenient link to look up homes in your area
Bad Credit Loans - SubPrime loans no longer exist but I do have options through FHA that allow for borrowers with comprimized credit. 580 minimum credit score required and we will need to show at least three good tradelines. These loans are done on a case by case basis. please tell me your story and I will let you know if you have a shot.
Manufactured Home Loans there is a drought of lenders who will write manufactured home loans right now. Currently I have two. The home must be a doublewide less than 15 years old attached to the ground. I do not write loans in mobile home parks
Conventional Financingis for Good/Excellent Borrowers who deserve the lowest prevailing rate. Most loan searches start with Fannie Mae or Freddie Mac Alternatives
- Credit Scores should be 680 or better for each borrower
- Fixed Rates and Adjustable Rate Mortgages available at rates as low as 3.50%
- These programs generate the lowest payment for refinances and purchases
- Mortgage insurance is required for 80%-95% financing on purchases or refinances
- DU Refi Plus or Freddie Mac Relief allow for over 125% financing without PMI for homeowners who previously secured Fannie Mae or freddie mac financing on their homes prior to June 2009.
- I can price your loan with points or without. Typically you pay a point to buy your rate lower
- Primary Residence, Second Homes or Investment Properties
- Fannie Mae or Freddie Mac Loan Programs make for an easier process. Fha has more paperwork
- Maximum 6% seller paid closing costs for purchase loans 80% and under
- Maximum 3% seller paid closing costs for purchase loans 90% and under
- No Prepayment Penalties
FHA Federal Housing Authority
The Federal Housing Authority (FHA) still provides 96.5% financing with up to 6% seller paid closing costs with scores as low as 640.* FHA will also accept a 5% gift .
* We have sourcesthat will look at scores as low as 600 with certain circumstances.
FHA Purchases- FHA is the one of the most popular mortgage loan programs available today. 96.5% FHA financing requires 3.5% down payment. If you are receiving a gift from family member, you can obtain 95% FHA Financing. We have some amazing adjustable rate mortgages available with FHA as well. Using a 5/1 ARM might mean the difference between an affordable home payment and one that hurts a little bit.
Ask me about this. These programs are great First Time Home Buyer Loans.
The most important strength of a file when obtaining financing is the job. FHA needs to see you in the same line of work for at least two years. If you are a self-employed individual, FHA wants to see you self employed for at least two years. It is O.K if you have recently switched positions as long as the move is for the better and in the same line of work. I will calculate your debt ratios to verify how much home you can buy. This is all part of the pre-approval process that should take place before you go shopping with a realtor.
FHA allows for credit that is just beginning to develop. Usually an underwriter likes to see at least three trade lines paid on time for at least one year. In addition to credit listed on the credit report we can build alternate forms of credit. Examples of alternate forms of credit include:
- Rent - Pay it on time with a check
- Get a secured credit card
- Phone Bill - We can get a reference letter from the phone company
- Electric Bill - We can get a reference letter from the electric company
- Car insurance - Your agent will provide us a reference letter
- Buy here, pay here car dealerships
- Buy here pay here furniture stores
- Just because you have blemishes on your credit doesn't mean that you cannot get a loan!
If a debt appears on your credit report that is being paid by another individual, we prove this by showing 12 months cancelled checks. Related links:
Funds for Closing
FHA requires 3.5% down payment coming from your own funds. If you wish to receive a gift from a family member the amount required is 5%. Usually when we are structuring financing for individuals with limited funds, we structure the financing with seller paid closing costs. This limits the amount of money out of pocket needed for closing. Ask me about this. FHA allows for up to 6% seller paid closing costs but keep in mind the borrower (s) always need to come in with their own 3.5% in the transaction.
FHA will look at properties that are intended to be used as a primary residence. The FHA appraisal will scrutinize the property to ensure that the buyer is not buying a "lemon". If there is substantial work that needs to be done to make the property functional, FHA has a loan for that. At this point in time I even have a FHA construction loan.
For more information with regards to preparing yourself for homeownership, please see my video series entitled: First Time Homebuyers This is a video workshop consisting of eight segments that will provide more details as to the steps you need to take in order to get ready.
USDA- USDA will allow for 100% financing in designated rural areas. Minimum 640 credit score. This program is no longer available for manufactured homes. The home needs to be in a rural area. Here is a lookup tool to see if the location qualifies. http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
Fannie Mae Foreclosures - Fannie Mae has a program that allows for 97% financing without mortgage insurance on Fannie Mae held foreclosures. This is essentially FHA financing without the mortgage insurance. Fannie Mae foreclosures are everywhere and sometimes avoiding the mortgage insurance will save as much as $100 per month.
How Much Home to Buy?
Many factors come into play. How much can I borrow? How much can I put toward my down payment? What size monthly payment can I afford?
Sometimes ,there are no black and white answers to these questions. Its a matter of give and take or your gut feeling. If you plan on a 30 year mortgage, you can probably make a lower down payment (or perhaps no down payment at all) and still manage the monthly payments. If, on the other hand, you plan on a 15 year mortgage, you'll probably want to make a larger down payment to keep your monthly payments in line with what you can afford each month.
How large a down payment can I make?
Many buyers look at their cash on hand as their only source for their down payment to go buy a house. This simply is not the case. One way to fund or partially fund a down payment is by using a gift. FHA will accept a 5% gift. So will Fannie mae but you will need your own 5%. Fannie Mae and Freddie Mac will also allow 20% gift and you will not need need any additional money towards the down payment. Parents, grandparents and other family members are often eager to help by making a cash gift toward the purchase of your home.
But these are not your only options. We can help you explore all your down payment options, including low down payment and 100% mortgage financing options that might be right for you if you live in qualified areas.
What size monthly payment can I afford?
When determining what size monthly payment you can afford, you'll want to consider what other monthly expenses you have. Tangible expenses such as car payments, day care and utility bills, all play a role in how large a monthly payment you can afford. Usually I start the conversation by asking the customer, "How much are you paying in rent?
Usually if that person has been making rent payments comfortably it would be nice if they were able to get into a home of their own and have an equally manageable payment.
There are also the intangible expenses or lifestyle expenses that you'll want to consider. Things such as dining out, travel and when you buy your next car can effect how much you can afford. Are you willing to curtail or delay some of these expenses in order to afford a larger monthly payment? If you have a car loan with less than 10 payments, we don't have to count this in your debt ratios
How much can I borrow?
This is a question you'll want to get answered before you begin your home search. This is something that we're here to help you with. Our mortgage calculators will help you see how your down payment, monthly payment and the amount you borrow are all interrelated. As a rule of thumb, there are two ratios that we follow, a front ratio and a back ratio. The front ratio is your gross earnings compared to your housing payment and the back ratio is your housing payment and all of your debt compared to your gross monthly income.
Fha for example likes to see these ratios at 28% and 36% but I have seen loans go much higher.
When we gather all of your information we run your deal on line to an on line underwriting engine on the internet. The engine takes into account of all of your income, assets, credit and debts and gives us a feedback. Ideally it would like to see your two ratios at 28 & 38 but if the credit is good or the customer has a lot of assets, it will allow for higher ratios. Bottom line is that we have to run your deal on line to know where we stand. We can answer any questions you may have about the mortgage process. But the best way we can help is by getting you pre-qualified for a mortgage loan. To get started, simply complete the form below to let us know a good time to contact you. We look forward to helping you buy your dream home
Debt to Income Ratios
Your debt to income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met. There are two ratios, referred to as the front ratio and the back ratio.
The front ratio is based upon your gross income compared to your total housing payment. The back ratio is based upon your gross income compared to the total housing payment and all of your debts.
There is generally a debt limit associated with each type of loan, such as a 28/36 qualifying ratio for a conventional loan. These qualifying ratios are guidelines. An excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit.
Understanding the qualifying ratio
Typically conventional loans have a qualifying ratio of 28/36. Usually an FHA loan will allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes and homeowner's association dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.
With a 28/36 qualifying ratio:
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 qualifying ratio:
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
Remember these are just guidelines. We’d be happy to pre-qualify you to determine how large a mortgage loan you can afford. We look forward to helping you buy your dream home.
I will run your loan through an automated underwriting engine through either Fannie Mae, Freddie mar or FHA. I have seen loans with debt ratios as high as 60% get approved although nowadays lenders are putting "overlays" on the feedback so generally lower debt ratios are preferred.
Using Mortgage Calculators
When it comes time to crunch the numbers concerning your next home purchase or if you are pondering the benefits of a refinance let the “mortgage calculators” section of your favorite web site help you analyze the benefits of your new home or lower interest rate. Nowadays, thanks to the internet and technology we have so many more tools that help up understand the benefits of the loan and the interest rate we are getting. Right at our fingertips we can calculate mortgage payments, tax savings, break-even points, whether to buy or rent, how much house to buy, etc. It is important to use the tools correctly because a wrong input will produce wrong output and everybody knows that a wrong number is a lie.
Here are a few things to keep in mind.
If you are pondering whether to purchase or rent, go to the Rent vs Buy calculator. Put zero in for price appreciation of the home as a starting point. Fill in the numbers for a modest home. I am willing to bet that your estimated mortgage payment is lower than what you are paying for rent. With interest rates in the fives and already discounted home prices, you can’t miss. This will motivate you. Now go over to the mortgage tax savings calculator and punch in your tax bracket and projected payment. For example, a modest loan of $100,000 at an interest rate of 5.25% with a 20% tax bracket will save the homeowner another $1243 per year. After seeing this, go back to the rent vs buy graph and lower the mortgage payment by $100. Look good? Now go back and start playing with the appreciation field for the purchase and the numbers will really jump out at you.
Looking at the mortgage qualifier calculator, required income and maximum mortgage calculators, I noticed that the system default is strict. My system used debt ratios of 28/36 which are the numbers FHA likes to see. Having worked in the mortgage industry for 15 years I can tell you that many customers get away with much higher debt ratios. In other words you probably can borrow more if you want to. Whenever we process a mortgage, the loan is run through an automated underwriting engine that weighs all of the factors of the loan including equity in the transaction, reserves and credit that can offset higher debt ratios. Although these sections are helpful, I would rely on the advice of a mortgage professional for these answers. Determining the household budget not only takes into account ratios but it also involves knowing what income we can use to qualify. This is what we do before we issue the pre-approval letter before you go shopping with the realtor.
The refinance interest savings calculator and refinance break even calculators are excellent tools to use when considering a refinance. I found these tools somewhat limited because on my system there was no room to consider cash flow savings from paying off credit cards or a second mortgage. A 15 vs 30 year mortgage calculator will demonstrate the power of interest and why banks are happy when you select a 30 year fixed over a 15 year fixed.
Of all the calculators that I looked at, the one that appears to be the most misleading is the adjustable rate mortgage calculator. With the low cost of money, adjustable rate mortgages have sort of made a comeback in the last year or so. Today’s adjustable rate mortgages are not as “dangerous” as the sub-prime adjustable rate mortgages sold previous to the sub-prime meltdown because the margins are low. When I went into my calculator the default change rate from one year to the next was .25% . This is misleading. Whenever an adjustable rate mortgages gets out of the fixed period the interest rate is at the mercy of the index and the margin and the caps. Caps can be either 1, 2, 3 or 5% in a given year. It is wise to over estimate and be conservative by predicting changes of at least 2% when the interest rate adjusts.
Years ago there was talk that appraisers might be replaced someday by automated valuations and now we see that their job is more important than ever. This is similar to the way I feel about using mortgage calculators. They are an awesome tool that you can use in the comfort of your own home but it is still necessary to consult a mortgage professional to fill in the blanks and make sure the correct numbers are going in.
The information in your credit report has a huge impact on whether or not you qualify for a mortgage loan and what interest rate we can get for you.
Therefore, it’s important your credit report reflects a positive image of the way you manage your money. If you're getting ready to purchase a home, checking your credit report is the best way to ensure you get the loan and interest rate you deserve.
The easiest way to see what’s in your credit report is to contact the three national credit reporting agencies – Equifax www.equifax.com,
Experian www.experian.com and TransUnion www.transunion.com - and request a copy from each. That’s because the three agencies are independent of each other and the information may differ on all three reports.
FHA now requires a 640 credit score. I have options with two other portfolio lenders that will look at a 580 score and over on a case by case basis. We work with the middle score of the three credit bureaus. Let's get to work!
If you've been denied credit, insurance, or employment because of information in your credit report from any of the three agencies, you can obtain a free credit report by contacting the agency within 60 days of receiving a denial notice. In addition, you're entitled to a free copy of your report each year when you certify in writing that (1) you're unemployed and looking for a job within 60 days, (2) you're currently on welfare, or (3) your report contains errors due to fraud. Otherwise, the agencies charge a fee for a copy of your report.
For additional fees, each agency may offer you different report variations, such as:
- A credit report with or without your credit score.
- A three-in-one credit report that lets you see a side-by-side comparison of records, from all three agencies, with or without scores.
- Notification services when your credit history is requested.
- Routine notification changes to your file.
- Subscriptions that allow you to access your report on a regular basis.
New law promotes free access to credit reports
Soon you'll be able to get your credit report for free regardless of your employment or financial situation. A recent amendment to the federal Fair Credit Reporting Act (FCRA) mandates that each agency provide you with a free copy of your credit report, at your request, once every year, from www.annualcreditreport.com.
Whether you are thinking of buying a home or simply curious about what’s in your credit report, it’s important to correct any errors you discover as soon as possible. You don’t want errors in your credit report affecting your eligibility for credit in the future.
Be sure to remove, duplicates and aliases and wrong addresses: Remember to check the back of the credit report for duplicates with your name, address, social and job information. If you previously applied for credit and the person inputting your information made any type of a typo, you will all of a sudden have different information reflecting in the back of the report. The bureaus will look upon this as sort of an alias or a different address. They will also look upon this as instability. The credit bureaus ideally would like to see you on the same job, living in the same house with the same name.
If you have collections, charge-offs I can help you settle them. Please call for details
Improving Credit Scores:
Please read the steps outlined below. These are the steps you take if you have 30-90 days to clear items from your credit report. I also have the ability to do what they call a rapid rescore or rapid recheck. This is done directly through my credit reporting company and takes 5-7 business days at a cost of $30 per trade line, per bureau, per borrower.
Your credit report is a record of your credit activities. It lists all of your credit card accounts and loans, the balances as well as your payment history. It also shows if any action has been taken against you because of unpaid bills such as a lawsuit or bankruptcy filing. Because businesses use this information to evaluate your applications for credit, insurance and employment, it’s important that the information in your report is complete and accurate, especially if you plan to make a big purchase like a home.
The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission (FTC), is designed to promote accuracy and ensure the privacy of the information used in consumer reports. Under the FCRA, both the credit reporting agency (CRA) and the organization that provided the information to the CRA (usually the credit card company) must correct any errors or incomplete information in your report.
If you do encounter a mistake on your credit report, several steps need to be taken to correct the matter: Like I have already mentioned, I can take the slow road or the fast road.
1. The first thing to do is get a copy of your credit report from each of the three major CRAs: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com.
2 In a written letter, tell the CRA what information you believe to be inaccurate. Include copies (not originals) of documents that support your position. Provide your complete name and address, identify each item in your report you dispute, and request deletion or correction. If you simply dispute an item, it will show dispute and your credit score will not be improved.Be sure to make copies of your dispute letter and enclosures.
3. Send your letter by certified mail, return receipt requested, so you can document what the CRA received.
4. The FCRA mandates that all CRAs reinvestigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all relevant data you provide about the dispute to the credit card company. After the credit card company receives notice of a dispute from the CRA, it must investigate, review all relevant information and report the results to the CRA.
5. If the disputed information is found to be inaccurate, the credit card company must notify all nationwide CRAs so they can correct this information in your file. Disputed information that cannot be verified must be deleted from your file.
6. When the reinvestigation is complete, the CRA must give you the written results and a free copy of your report if the dispute results in a change. If an item is changed or removed, the CRA cannot put the disputed information back in your file unless the credit card company verifies its accuracy and completeness, and the CRA gives you a written notice that includes the name, address, and phone number of the credit card company.
7. In addition to the CRA, you should also write to the credit card company about the error. Again, include copies of documents that support your dispute. If you are correct — meaning the information you disputed is found inaccurate — the credit card company cannot use it again. Further, at your request, the CRA must send notices of corrections to anyone who received your report in the past six months.
The Home Buying Process:
The Initial Fees Disclosure & The Good Faith Estimate
The Application-Verifying Income and Assets
The Home Inspection
The Flood Cert and the Tax Cert
The Credit Report
The Initial Fees Disclosure Form is a form that lists all of the potential fees on the loan. Previous to 2010 this form was called the Good faith Estimate. The form lists all of the potential costs that will occur on the loan. A good loan officer will come within $200 of the final closing costs or at least overestimate the figure so there are no surprises at closing.
Here is a description of every fee on the Initial Fees Disclosure:
Loan-Related Closing Costs
Loan Origination Fee
This covers the administrative expenses in setting-up and processing the loan. The loan origination fee may be a percentage of the mortgage amount.
An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1 percent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.
The fee for having the house appraised may be incorporated into the closing costs or payment may be required by the lender at the time the loan application is submitted.
The lender uses a credit report to determine the creditworthiness of the loan applicant. This fee is often paid when the loan application is submitted.
The above fees are typically located in the 800 section of the good faith estimate or initial fees disclosure.
Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and when the first mortgage payment period begins. For example: If closing is on May 15. Your first monthly payment begins to accrue interest on June 1 with your first mortgage payment due July 1. At closing an interest payment covering the accrual period between May 15 and May 31 may be required.
At closing a payment may be required to fund the escrow account if the lender is paying home insurance, property taxes and/or other expenses out of the escrow account.
Title Company Fees and State Specific Fees Every title company and state is different. Title company fees are based on the title agent, the contract and the particular county you are closing in. fees may vary based on the county. For example in Broward county Florida, typically the buyer picks up the majority of the closing fees where in Palm Beach County Florida typically the seller picks up the majority of the costs. It is my job to contact the title company involved and get an accurate estimate of the fees.
Let me explain each item one at a time by number: The number you will find on the old version of the good faith estimate or on the new version of the initial fee disclosure statement.
801 Loan Origination Fee - Is a fee that the broker/Banker may charge. Usually this is done in a situation where the customer is trying to "buy the rate down”. Loan origination fee is commonly referred to as points. If you pay 1% of the loan amount you have paid a "point" typically points are tax deductable.
802 Loan Discount Fee - Is also a fee used to buy the rate down. A broker can use an origination fee to lump processing fees or application fees but a discount point is used strictly to pay the source to get a lower rate.
803 Appraisal Fee - Is the cost of the appraisal used to get a measure of the value of the home. Since banks instituted the Home valuation Code of Conduct last year, the appraisal is ordered through an appraisal management company appointed by the bank. Since the HVCC has been instituted, the quality of appraisals has gone down with little recourse for the customer.
804 Credit Report - This fee is for the cost of your lender pulling a credit report from the three main credit bureaus. Trans Union, Equifax and Experian. The lender will base your loan off of the middle of these three scores. Mortgage brokers and bankers cannot make money on the credit report so they are required to charge you their cost.
805 Lenders Inspection Report - This fee is rarely seen except on FHA mortgages. Sometimes if a lender is nervous about the soundness of construction of the subject property they may require an impartial third party opinion performed by a licensed contractor. They are required by law to charge you exactly what their cost is.
808 Mortgage Broker Fee - Is another way of accomplishing the same effect as the mortgage origination fee. Call it what you may, if a broker is charging you more than 1% with either of these fees that is a good sign that you are being overcharged. Nowadays many lenders will not charge a processing or application fee but they will charge a mortgage broker fee.
809 Tax Related Service Fee - Is a fee charged by the lender for verifying taxes on the property. Fha loans do not require this fee.
810 Processing Fee - is a fee usually charged by a third party processing company. Nowadays many lenders outsource the hands on tasks of ordering title, ordering appraisal and putting the file together in an organized manner. Processing is not easy so if you get a call from the processor, do everything you can to help.
811 Underwriting Fee - This fee is the paperwork fee of the bank that is going to approve your loan. They review all the work done by the broker or loan originator and processor and double check to make sure this in the best interest of their bank.
812 Wire Transfer fee - is a fee charged by the bank if they intend to wire funds to the closing agent. Years ago many banks wrote large checks but nowadays they prefer to wire the money. Usually the wiring bank has a fee of about $10.
813 Flood Cert - is a fee the bank charges to verify whether or not the borrower is in a flood zone. To determine this banks use an impartial third party company that refers to giant maps with 100 year records
814 Application Fee - Just about every lending institution has an application fee to cover the cost of their overhead that accompanies each and very loan. If you do not see a line item that says "application fee" most likely the fee is buried somewhere else such as mortgage broker fee or origination fee. Application fees are used to cover the cost of offices, papers, computers, toner and other day to day fees associated with running a mortgage business.
The 900 Section Escrows
901 Per Dium Interest - Described above. This fee is based on the day in the month you close. When refinancing this becomes a mute point because the per dium on the existing loan is exactly inversely related to the per dium on the new loan. In other words, don't sweat this fee.
902 Mortgage Insurance Premium - This premium is paid on all FHA loans and conventional loans (Fannie Mae or Freddie Mac) above 80% loan to value.
903 Hazard Insurance - Typically when purchasing the borrower is required to pay one year of insurance up front along with 2 months extra in an escrow account.
The 1000 Section Reserves Held by the Lender
1001 Hazard Insurance Premium - As previously mentioned the lender requires ample reserves if you are escrowing. If your loan is less than 80% loan to value you have the option of waiving escrows. But even if you are waiving, with each purchase one year of insurance is required to be paid up front.
1003 Taxes Escrow - These escrows usually work out to be 5 months if you are purchasing or possibly more if you are refinancing. When refinancing this escrow is based on how many months you are away from having taxes due.
The 1100 section Fees are associated with the fees of the Title Company, attorney or closing agent handling your file.
1101 Closing Fee - Is the fee title companies, closing attorneys charge for closing your loan. This fee represents more work than just sitting at the closing and telling you where to sign. The closing agent also is responsible for verifying that you are receiving a clean title to the property. What this means is that there are no liens or encumbrances attached to the property from the previous owner. Years passed there were many other fees listed but now fees are grouped into mainly closing fee and title insurance.
1105 Document Preparation Fee - is a fee charged when a closing agent has to down load and print a very large closing package. Some closing agents lump this cost into closing fee, others spell it out separately. Toner and paper add up so this is their way of recouping some of those costs.
1106 Notary Fees - are typically charged when a "mobile closer" is used to perform the closing outside of the office of the closing agent. This person may be part of a third party company or they may be an employee of the closing agent.
1107 Attorney Fees - Some states are attorney states and others give the borrower the option of closing with a title company. Also in certain cases such as a builder loan or a new home purchase a borrower will hire an attorney on his behalf. This line item can be used to pay either the seller's or the buyer’s attorney.
1108 Title Insurance - is the main fee from which closing agents make their money. The fee is derived from a title company fee schedule mandated by the state in which the property is located. The larger the purchase or loan amount, the larger the fee. If you are refinancing within the first 4 years of owning your home, and you have a copy of your owner’s title policy, you are entitled to a re-issue credit that lowers this fee.
1109 Title Endorsements - are typically 10% of the title policy plus extra for certain endorsements for various purposes. Additional endorsements are required for adjustable rate loans, properties in planned unit developments and other unique situations. Nowadays many title companies lump the endorsement fee in the title insurance line item.
1110 Title Search - Is a fee that is associated with checking the title records to make sure there are no liens on the property. Many title companies must pay a fee to the county in question for title information attached to the property.
Government Transfer and Settlement Charges (1200 Section)
1201 Recording Fees - Recording fees are based on the number of pages that the new mortgage has. The closing agent is required to record each page with the county the property is located in. Pages are typically $6.00 or $7.00 dollars per page.
1202 City County Tax/Stamps - This fee is sort of like a sales tax on a real estate transaction. These fees vary from state to state. As an example in Florida the stamps are .0035% times the loan amount.
1203 State Tax - Is a similar fee that in Florida is calculated by using a factor of .0002 times the loan amount.
Additional Settlement charges are fees that are charged by 3rd party companies.
1302 Pest Inspection - Is done on FHA loans to ensure that there are no termites or other pests creating havoc to the structure
1303 Survey - A survey measures the boundary of the lot. Not to be confused with the appraisal which provides a fair market estimate of the value of the entire property. The job of the surveyor is to establish your boundary to double check your neighbors hasn't built a fence on your property or something of that nature. If you are doing a refinance, we typically can use your prior survey as long as you haven't done any major improvements to the property. E.g. a fence or a pool or a new room
1304 Realtor Processing fee - Many loan officers do not disclose this fee because they feel it up to the realtor to disclose this with the contract. But if we are trying to get a good estimate of closing costs, a smart loan officer will look at the contract to double check. Just like lenders, mortgage brokers and title companies have "paperwork fees”, realtors are quite often responsible for a paperwork fee to their parent company. If it is not charged, the fee will be subtracted from their commission.
1305 Condo Questionnaires- These are forms that the lender requires checking the health of a condominium association. They also want to see if there is an overly high percentage of investors in a given community which can be a risky investment to the bank. Management companies for communities typically charge $100-$150 per form
The New Good Faith Estimate
As of 1-1-2010, Mortgage Brokers and Mortgage Bankers are required to issue a new Good Faith Estimate form when quoting a loan interest rate. This is good news for homeowners and potential buyers because the new estimate has very margins for error built in. Lender/broker fees need to be 100% correct as well as transfer fees for the state. Third part fees have a tolerance of 10% error. Escrows allow for tolerances because those fees are at the discretion of the borrower.
In years passed if the person providing the estimate did a lousy job it was the borrower who picked up the tab at closing. Now the differences between the initial disclosure and actual numbers at closing are covered by the broker/lender. The new HUD-1 closing statement will itemize the GFE disclosure and the actual fee being charged the borrower. The differences are then carried to a third column and then tallied up. Approaching the Good Faith Estimate this way mandates that the person providing the piece of paper puts some time and effort into it, otherwise his paycheck will suffer.
The intent of the new form is good but as a disclosure it has a lot to be desired. The #1 complaint that I hear from customers is that it does not provide any measure of cash to close. In order for the borrower to check that final number for closing the broker/lender must issue an additional disclosure entitled "initial disclosure" which is basically the old style good faith estimate with a different name.
Also the new Good Faith Estimate is not required unless the borrower has fulfilled all of the requirements of applying.
The fundamental components required for a true mortgage application are:
- Borrower name
- Borrower income
- Social security number
- Loan amount
- Property address
- Estimate of Value
This means if a borrower shopping doesn't wish to give his/her social then the lender/broker can use the old form which is not binding. Also for someone purchasing, if they have not found their property address yet, the new disclosure is not required. This is only fair to the lender/broker because depending on where the property is located will determine transfer fees and title charges that he is now responsible for quoting.
Please see my article written for Huliq.com that has more on the subject
As of 1-1-2010, when they are quoting a mortgage rate, Mortgage Brokers and Mortgage Lenders are required to provide a new and improved version of the Good Faith Estimate . This will make borrowers happy because the risk of a bad estimate has been shifted from the borrower’s shoulders to the mortgage broker and mortgage lenders pockets.
This measure was taken to try to make the document easier to understand for the average customer and also to make it much more binding on the person providing the estimate. I am not sure if it is necessarily easier to understand this quote of a mortgage rate but it certainly does protect the borrower and is a great step against predatory lending.
For those of you who are not familiar with mortgage lending or getting a quote of a mortgage rate, the Good Faith Estimate is a very important document that is disclosed within three days of the initial application. The purpose of the Good Faith Estimate is to provide an accurate measure of final closing costs and out of pocket expenses for the borrowers. A good loan officer will check the fees of the lender, the fees of the title company involved and also take into account escrows for taxes and insurance and transfer fees of the state in which the subject property is located. A good loan officer should be able to come within $200 of the final number. A bad loan officer in the past would employ selective memory by leaving a few fees off to make his estimate appear less expensive then the next guys.
The new Good Faith Estimate for 2010 is better because the customer is protected against a really bad estimate because of tolerance thresholds placed on the lender/broker. For example, lender fees must be 100% correct or quoted higher than necessary or the originator absorbs the difference. Third party fees have a tolerance of 10%. State transfer fees need to be exact. There is tolerance for differences in taxes and insurance but that is understandable because those numbers are determined after the customer makes a decision on which insurance policy they are going to go with.
When it comes time for closing, borrowers will now sign the new HUD closing statement which is compared directly against the New Good Faith Estimate they were provided. Closing agents will simply do the math to see if there are any discrepancies and then the loan officer will write the check if there is a major difference.
Under the new rules, a typical Good Faith Estimate is a quote of a mortgage rate that is good for about 10 days then it expires. If the loan is locked, then it is good for the duration of the lock. Also the originator is not required to provide the estimate unless the customer fulfills all of the requirements of a real deal. The customer will need to provide: name, gross monthly income, social security, number (to obtain a credit report), property address, loan amount sought and estimate of value. So in other words if you are searching for a home and have not found it yet, you will receive an initial disclosure form rather than a good faith estimate.
The initial disclosure form looks a lot like the old good faith estimate but is not nearly as binding. In all fairness to the loan officer, it does take a lot of time to track down each fee on a file with 100% certainty. Also, if a customer wants to play games by getting five good faith estimates, they will have their credit pulled five times now which probably isn’t smart. If a customer is just shopping for the sake of shopping for an interest rate, the initial disclosure form should suffice until they step up to the plate and decide which lender they want to work with and make a commitment.
Written by Preston Ware
First South Mortgage
Email is firstname.lastname@example.org.
When you fill out an application it is the beginning of a process in which every fact on that four page application is going to be verified. The actual initial conversation may only take 15-20 minutes but the entire process of verifying each fact will take two to four weeks.
During our conversation I will high light the strengths and weaknesses of your application and discuss any potential pitfalls. It is my job to show you all of the potential options for you and estimate to the best of my ability how much your future payment will be and how much out of pocket expense it will take to purchase the home.
Here is an example of the items requested check list that I will send to you after our discussion. I will check items I need in order to get your loan finished.
Verifying Your Income and Assets
A critical step in the mortgage loan application process is to verify the sources for your income & assets.
Income and Employment
The lender will want to confirm your current gross income and have evidence of stable employment. Documentation requirements vary depending upon a number of factors - including the source of income (hourly, salary, salary + bonuses, salary + commission, commission, self-employed, etc.).
All of these details are fully discussed before a single piece of paper is signed or you go shopping with your realtor.
Documenting that the down payment comes from your savings and that you will have savings and/or assets over and above the down payment gives the lender confidence in your strength as a borrower and your ability to repay the loan.
Take extra care to document the sources for any monies to be used for the down payment or closing costs.
Acceptable Down Payment & Closing Costs Sources
- Cash in a bank account
- Mutual funds / stocks / IRA / 401(K)
- Proceeds from the sale of another property
- Gift from an immediate relative
- Mattress Money is not
- Cash on Hand is not
Before I submit your file to the bank, I submit your file to an on-line underwriting engine in the sky so to speak. This engine will tap into the parameters required by Fannie Mae or Freddie Mac or FHA or whatever loan program I am submitting too. The engine will way all of the variables of your file. It will weigh your income, assets, liabilities and credit and issue a feedback. The feedback will tell me, way up front, yes, no or maybe. In actual terms it will say "approve/elligible for Fannie Mae or "Accept" for Freddie Mac. It will say refer with caution if you are a maybe, or refer if you are a decline.
The feedback will dictate exactly what I will need in order to process your file and get it to closing. If I have entered your information correctly and calculated your income correctly, all that remains is that your file needs to validated by someone over at the end lender.
Collect information about your personal assets that add to your net worth and help to prove your credit worthiness.
Common Assets Considered in a Mortgage Loan Application
Stocks, bonds, mutual funds, 401(K) and retirement accounts
Personal property estimate - cars, boats, antiques, jewelry, etc.
Other real estate or property
Assets need to be seasoned for one to two months prior to application
Typically what is needed is one or two months bank statements. (All pages) If there are any large deposits on the statements, they will need to be explained. It is my job to trouble shoot all of the items of your file so that when your file reaches the underwriter, there are no surprises.
The Home Inspection
As I said before the home inspection is an option for every buyer which allows them to pay a third party company to go in and examine the property for flaws. Many times the inspector will uncover cosmetic items and other times the inspector will uncover structural or mechanical flaws that may make the buyer think twice about the purchase. Sometimes the problems will be enough for the buyer and seller to renegotiate or other times the seller will emphasize with an “as is” contract that the buyer is going to have to take care of the flaws on his own dime.
Why You Should Get a Home Inspection
Whether you are buying or selling a home, you should have a professional home inspection performed.
Don't confuse a home inspection with an appraisal. A home inspection comes first.
A home inspection will look at the systems that make up the building such as:
- Structural elements, foundation, framing etc
- Plumbing systems
- Electrical systems
- Cosmetic condition, paint, siding etc
If you are buying a home, you need to know exactly what you are getting. A home inspection, performed by a professional home inspector, will reveal any hidden problems with the home so that they may be addressed BEFORE the deal is closed. You should require an inspection at the time you make a formal offer. Make sure the contract has an inspection contingency.
Why might you need an appraisal? How do appraisals work?
As of May 1st, 2009 The Home Valuation Code of Conduct (HVCC) has dramatically effected the way appraisals are ordered. If you are doing a conventional loan, the appraisal will ultimately be ordered by the bank. (Although you still need to pay for it.) If you order an appraisal on your own beforehand, you will end up paying for two appraisals. The HVCC will soon apply to FHA financing. Please see my article posted on http://www.HULIQ.com discussing the ramifications of this legislation. This legislation cripples appraisers who have spent their whole life building a business and providing service. Please vote to repeal this legislation.
In many cases, lenders need a professional, independent appraisal of the property you want to buy or refinance to ensure that it is worth at least as much as they are being asked to lend on it. If you are making a smaller down payment and have a lower credit score, the lender is going to be even more interested in making sure the property that will be collateral for the loan is worth lending the amount requested.
If you are in the beginning of the process and wish to get a ballpark figure on a particular property you may wish to try http://www.zillow.com . I have a similar feature on this web site; go to http://www.prestonware.com/CheckPropertyValue If you are purchasing you can rely on the feedback from your realtor.
The appraiser will form an opinion on the probable market value of the property considering sales of similar homes in the area among other factors. He or she will prepare an appraisal report explaining the conclusion. The appraisal belongs to the lender considering lending money with the home as collateral. Often, you can receive a copy of the appraisal either as a courtesy or in keeping with state law. Let us know you're interested and we'll help.
The lender wants to know first of all whether the property is worth at least as much as the loan amount. In the unlikely event the lender would have to foreclose, it wants to know it should be able to recoup at least the loan amount. But if your loan program depends on you borrowing, for example, 95 percent of the property's value and no more, the appraisal can impact your eligibility for the loan that's right for you. In a "close" case like that, the best solution is almost always to increase your down payment, or we can help find another solution such as another loan program that works.
An appraisal can cost from $350 to $500 or more for very complex properties. You as the borrower repay the lender for its cost in paying the appraisal fee upon settlement of the loan.
If you have an FHA loan, we can call a local appraiser and get a feel for the market although what they can tell us is limited to recent sales. It is important to know the specific amenities of the home because these items will create adjustments to comparables.
The Closing Agent and Holding Title
Palm Beach and Broward Counties have different rules with regard to title. When purchasing a home in Broward county typically the buyer pays the majority of title charges and gets to pick the closing agent. In Palm Beach County typically the Seller picks up the majority of the fees and selects the closing agent.
Before you reach the closing day, you will want to make a decision as to how you will "hold title" on the property. It is the closing agent’s job to verify that you are receiving a clean title to the property you are purchasing and make sure they are on the same page exactly how you are “taking title”
- Sole Ownership
- A single individual who has not been legally married. E.G. John Doe, a single man
- An unmarried individual who was married and is now legally divorced.
- A married individual who wishes to acquire title in his or her name alone. At the time of closing, the spouse of the buyer will be required to specifically disclaim or relinquish his or her right, title and interest to the property.
- Living Trust
A living trust is created while an individual is alive and gives the individual control of the distribution of his or her estate. The individual transfers ownership of his or her property and assets into the trust.
Buying with Others
- Tenancy in Common
Enables each partner in the property to sell, lease or will to his/her heirs that share of the property belonging to him/her.
- Who can take title? Any number of individuals.
- Ownership Division: Any number of interests, equal or unequal.
- Who holds title? A separate legal title to his undivided interest is held by each co-owner.
- Possession: Equal right of possession.
- Joint Tenancy
Property owned by multiple individuals where if one of the owners dies, the remaining owners acquire the share of the deceased owner automatically.
- Who can take title? Any number of individuals.
- Ownership Division: Interests cannot be divided.
- Who holds title? There is only one title to the whole property.
- Possession: Equal right of possession.
- Community Property
Property owned equally between a husband and wife. Each must sign all agreements and documents of transfer.
- Who can take title? Only a husband and wife.
- Ownership Division: Interests are equal.
- Who holds title? Similar to title being in a partnership, title is held in "community."
- Possession: Equal right of possession.
What are Homeowner's insurance, Private Mortgage Insurance (PMI) and Title insurance?
A Homeowner's insurance policy is a package policy that combines more than one type of insurance coverage in a single policy. There are four types of coverage’s that are contained in the homeowner’s policy: dwelling and personal property, personal liability, medical payments, and additional living expenses. Homeowner's insurance, as the name suggests, protects you from damage or loss to your home or the property in it.
Remember that flood insurance and earthquake damage are not covered by a standard homeowner’s policy. If you buy a house in a flood-prone area, you'll have to pay for a flood insurance policy that costs an average of $400 a year. The Federal Emergency Management Agency provides useful information on flood insurance on its Web site at www.fema.gov. A separate earthquake policy is available from most insurance companies. The cost of the coverage will depend on the likelihood of earthquakes in your area.
Private mortgage insurance and Government mortgage insurance protect the lender against default and enable the lender to make a loan which the lender considers a higher risk. Lenders often require mortgage insurance for loans where the down payment is less than 20 percent of the sales price. You may be billed monthly, annually, by an initial lump sum, or some combination of these practices for your mortgage insurance premium. Mortgage insurance should not be confused with mortgage life, credit life or disability insurance, which protect you and are designed to pay off a mortgage in the event of your death or disability.
You may also encounter "lender paid" mortgage insurance ("LPMI"). Under LPMI plans, the lender purchases the mortgage insurance and pays the premiums to the insurer. The lender will increase your interest rate to pay for the premiums -- but LPMI may reduce your settlement costs. You cannot cancel LPMI or government mortgage insurance during the life of your loan. However, it may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount. Before you commit to paying for mortgage insurance, ask us about the specific requirements for cancellation in your case.
Private Mortgage Insurance helps you get the loan
Private Mortgage Insurance, also known as PMI, is a supplemental insurance policy you may be required to obtain in order to get a mortgage loan. PMI is provided by private (non-government) companies and is usually required when your loan-to-value ratio — the amount of your mortgage loan divided by the value of your home — is greater than 80 percent.
PMI isn't a bad thing — it allows you to make a lower down payment and still qualify for a mortgage loan. In fact without PMI, many of us would not be able to purchase our
How is PMI calculated?
Your PMI premium is fixed based on plan type (loan-to-value ratio, loan type, loan term, etc.) and is not related to your particular credit history or other individual characteristics. PMI typically amounts to about one-half of one percent of your mortgage amount annually, according to the Mortgage Bankers Association, and the premium payment is usually rolled into your monthly mortgage payment. On a $200,000 mortgage, you may be paying $1,000 per year for PMI.
Mortgage Insurance for FHA
Mortgage Insurance for FHA is calculated a little differently. FHA breaks it up. The monthly premium is lower because FHA requires the borrower to pay a lump sum as well when they receive the loan. usually the monthly is .5% per month and the up front is 1.5% of the loan amount. The good part about FHA is that they realize many borrowers are strapped for cash so that allow the borrower to finance the lump sum. In other words if a borrower is borrowing $100,000 and the mortgage insurance is $1500, FHA will let the borrower borrow $101,500.
Credit Life and Disability Insurance: Is something you can look at if you wish to insure your family against death or loss of the ability to work. Once you close, your information becomes public records so you will be inundated will solicitations from credit life and disability companies. 95% of homeowners do not get this protection.
Title insurance is usually required by the lender to protect the lender against loss resulting from claims by others against your new home. In some states, attorneys offer title insurance as part of their services in examining title and providing a title opinion. The attorney's fee may include the title insurance premium. In other states, a title insurance company or title agent directly provides the title insurance.
A lender's title insurance policy does not protect you. Neither does the prior owners policy. If you want to protect yourself from claims by others against your new home, you will need an owner's title policy. When a claim does occur, it can be financially devastating to an owner who is uninsured. If you buy an owner's policy, it is usually much less expensive if you buy it at the same time and with the same insurer as the lender's policy.
To save money on title insurance, compare rates among various title insurance companies. Ask what services and limitations on coverage are provided under each policy so that you can decide whether coverage purchased at a higher rate may be better for your needs. However, in many states, title insurance premium rates are established by the state and may not be negotiable. If you are buying a home which has changed hands within the last several years, ask your title company about a "reissue rate," which would be cheaper. If you are buying a newly constructed home, make certain your title insurance covers claims by contractors. These claims are known as "mechanics liens" in some parts of the country. The American Land Title Association has consumer title insurance information available at its website, www.alta.org.
The HUD-1 Settlement Statement
The HUD-1, also known as the settlement statement, is a prescribed form from the U.S. Department of Housing and Urban Development (HUD). This form itemizes all charges imposed on the borrower and all charges imposed on the seller in connection with the settlement of your real estate transaction. One business day before the settlement, you have the right to inspect your HUD-1 Settlement Statement.
The HUD-1 is filled out by the settlement agent who will conduct the settlement. The fully completed HUD-1 Settlement Statement generally must be delivered or mailed to you at or before the settlement. In cases where there is no settlement meeting, the escrow agent will mail you the HUD-1 after settlement, and you have no right to inspect it one day before settlement.
As of January 1, 2010 the rules have changed. Costs listed on the closing statement are reconciled against the Good Faith Estimate provided by the loan officer. Any differences in lender fees, title company fees and state transfer fees are now paid out of the loan officers earnings on the loan.
Differences in third party fees and escrows are not. (Ask me about this)
Here are two articles that I wrote that I thought were worth mentioning again. So many mortgage professionals provide a very lame Good Faith Estimate. Partly because they don't know any better and partly because they don't want to disclose all the costs in an attempt to make their bottom line look better
Shopping for the Lowest Mortgage Rate and Understanding APR
Here is a tip for homeowners and potential homebuyers when you are out shopping for the lowest mortgage rate. Always get a Good Faith Estimate and go one step further and get a copy of the Truth in Lending form also known as the TIL. On the Good Faith Estimate quite often a second rate lender will omit fees due to selective memory or they just don’t know any better. This creates the illusion of a lower estimate and lower cash to close. If a potential client is shopping me, I always say “please send me the other guys estimate and I will circle all of the numbers that are missing.” Missing escrows or closing fees will make a big difference to the bottom line and a bad surprise at closing. If anything it is smart to be over conservative on the good faith estimate and over estimate with no surprises at closing.
Here is another tool when shopping for the lowest mortgage rate. Get a copy of the APR on the Truth in Lending form. (TIL) Annual Percentage Rate or (APR) will give you a measure of the hard costs or closing costs associated with the loan. A good loan will have an APR which is very close to the note rate. In other words, if the note you are signing is at 4.875% the APR should be about 5.034%. The note rate will determine what your principle and interest payment will be but the APR will give you a measure of pre-paid finance charges such as origination points, application fees and the closing fee. The note rate and the APR will never will be identical unless your bank is paying all of your closing costs for you. Sometimes I laugh when I see a second rate lender advertising on the internet with an impossible interest rate of 4.375% on a 30 year fixed but the APR is 5.27 % or so. That means that customer is paying at least 5 points (or percent) to get that rate. Do you think that was pointed out in the first loan officer- customer discussion?
When shopping for the lowest mortgage rate, make sure your loan officer is addressing every conceivable cost. Some second rate lenders will pass off their shoddy Good Faith Estimate by saying “Well that is their fee; I have no control over their fees.” A good loan officer will call the title company on the customer’s behalf and get a quote of the title company fees and make sure the numbers are accurate. A good loan officer will read the purchase contract to see if the closing costs are being handled differently for any reason. Like any other service, when shopping for the lowest mortgage rate, make sure you look at the big picture and don’t forget to include expertise, honesty and service in the equation along with price.
Shopping for the Lowest Mortgage Rate: Study the Good Faith Estimate
It never stops to amaze me what some lenders pass for a good faith estimate. Typically when a customer starts shopping for his or her mortgage lender they will start by calling around to find the lowest mortgage rate. This is a cumbersome process and usually the customer will end up with some lender mentioned by some person to be honorable and trustworthy. It is kind of like finding a car mechanic; you want to hear from somebody that he or she is a “good guy and they will treat you right”.
The other day I took my car to the dealer for an oil change and they told me I needed brakes $180 (which I knew), a new computer $600, new gasket seals $500 on the engine and suggested a couple other items that I could conquer if I was feeling ambitious. So I changed my oil and went home. Two weeks later, I fixed my brakes at another dealer and all of those other problems miraculously disappeared. The same thing can happen when shopping for the lowest interest rate. Buy the things you need and don’t get carried away with the things you don’t need. If an estimate appears to be out of line, it probably is. Beware of an interest rate that is too good to be true and beware of fees that are omitted.
Whenever I am up against other mortgage companies, I tell the customer to fax me the other offer and I will circle all of the line items that are missing. Completely avoiding a fee will make the estimate appear much less regardless of interest rate. Quite often escrows are completely omitted to make the totals appear less. Every purchase requires one full year of insurance paid if you are escrowing or not. On a refinance, a major part of the discussion should be, am I escrowing, is the loan going to cover escrows, am I going to swop escrows that are due back to me from my current loan.
Beware of internet mortgage companies who send a bare bones estimate with an interest rate that is too good to be true. This is done partly because they process so many leads from customers who are surfing and partly because they know that internet prospects will probably collect 10 estimates and they want theirs to stand out. I once worked at a mortgage company for one day that believed in not disclosing the Good Faith Estimate. “Why do that, they are just going to shop you” Or the other response was, “if they want 3.5% tell them they can have it.” (Just don’t tell them it will cost 5 points.)
When shopping for the lowest interest rate, try to remember that it is not always a level playing field. If you are visiting the branch of a large bank, where the loan officer has one rate sheet he will not have very much flexibility. The rate is mandated by some higher up in secondary marketing who has built in the cost of overhead for all of the salaries and buildings of the entire organization. Let’s call him the dealer. The private mortgage guy is your local mechanic down the street, who may be a little less expensive because he has control over his own overhead and is willing to jump a little higher and cut cost a little more to gain a repeat customer for life.
REPEAL THE Home Valuation Code of Conduct:
(Which now applies to all loans)
The Home Valuation Code of Conduct is Legislation that Should Be Repealed
Three advantages I have as a mortgage broker over a large bank are speed, pricing and service. If you really think about it, those are the three components that separate any service business from another. The recently implemented Home Value Code of Conduct (HVCC) legislation has succeeded in worsening speed, pricing and service received for any individual obtaining mortgage financing. The HVCC will also succeed in putting many small business owners, (real estate appraisers) out of business. This change in the way banks do business stems from guidelines set by New York State attorney general Andrew Cuomo. HVCC guidelines do not apply to FHA financing where a borrower typically borrows 96.5% but only applies to Fannie Mae and Freddie Mac financing where the borrower typically borrows 80% financing. (You would think it would be the other way around)
The Home Valuation Code of Conduct (HVCC) is legislation that passed in March 2008 and became effective on May 1st, 2009. From that moment forward all real estate appraisals for Fannie Mae and Freddie Mac mortgage loans are now ordered through the bank’s appraisal management company rather than by the mortgage originator. The intent of this legislation is to prevent “persuasion” coming from the mortgage originator on the value of the property. Prior to this, a financial institution would call up their favorite appraiser and place the order. What’s the big deal you ask? Here are examples of how this legislation, raises price for the consumer and lowers service levels and will help to effectively put many small business owners out of business.
Appraisers, like mortgage people or realtors have been struggling for the last several years due to the difficult market. This legislation effectively takes away 40% of the appraisers business. I have known appraisers who have done a fine job for 25 years. They focus on service and doing the job in a timely manner and being as accurate as possible. Now their base of repeat customers can no longer call them up and use them on a Fannie Mae or Freddie Mac transaction. How would you like it if you were an AC technician and you had 200 customers, then one day the state tells you that you no longer can visit those people unless the compressor company sets the appointment for you. Twenty-five years of hard work and customer service has just been thrown out the window.
The Home Valuation Code of Conduct raises costs to the customer and reduces the appraisers pay and creates inefficiencies. Where $350 used to be the going rate for an appraisal now the cost is $400. The appraisal management company skims $100 of the top just for picking a random appraiser. If the bank tries to honor the old price, this means the appraiser who once made $350 per job is now making $250 per job. Now we are more likely to have a less experienced appraiser, who doesn’t care about service because there is no link between doing a fine job and his next order. He is less likely to put as much time into the job because he is getting paid less. Turn around times which used to be five days are now two weeks. This may force the mortgage broker to extend the lock which costs the consumer even more money and frustration. Just last week, I had a purchase where the sloppy appraiser misread the contract price. I had no way of telling him he made a mistake. The bank never fixed the mistake and it cost my client an additional $800 out of pocket. Under the HVCC, if a customer chooses to switch lenders, they have to start all over and pay for a brand new appraisal from a different random guy. It used to be we could transfer an appraisal from one bank to another if we found a better interest rate for the customer.
There is a petition going around that is a protest to this HVCC legislation. Please sign it on line. I have placed it on my web site and I am also placing it at the bottom of this article. This is just another example of how government intervention doesn’t necessarily always help the big picture. Another example of how mortgage brokers are being portrayed as the villains in this whole mortgage meltdown. Another example of how the large lending institutions, with their lobbyists, are pushing out the small business owner.
You can add your name to the petition at http://www.hvccpetition.com/
Written by Preston Ware
Email is email@example.com.
One year later, we have seen a lot of really bad appraisals. Turn times are twice as long as before, and the quality of work has gone down considerably. I have seen two appraisals on the same property come in 200,000 apart !
Here are more tips that will help you lock in a low rate:
- Work with a lender who has many options as to where to place your loan. If you go directly to a bank they have one option. Working with a mortgage company allows you to shop your loan with the many sources the broker has at his fingertips. Here at First South Mortgage we can pick and choose from the top ten sources in the country. Also, since we are a full eagle lender, we can close your loan in house which makes the process easier
- Work with a lender who is not overly greedy. Some mortgage companies tell their loan officers that they need to make (x) amount of dollars on each loan. In this case, they are not looking out for your best interest. Other banks have sort of a one sided relationship with their loan officers where the house takes 66% of the money. The poor loan officer has no choice but to charge you extra in order to make the same money.
- Work with a lender who doesn't have their loans spoon fed to them by a realty company or a builder. Quite often in this type of relationship there is a kick back that takes place which forces the loan officer to charge you a little more to make his normal fee.
- Work with a lender that doesn't have too much overhead. You have the best chances of getting a low interest rate if your lender doesn’t have too pay for offices and staff all over the country.
- Understand the day to day changes in the market and know how they will affect your loan. Usually a good day in the stock market is a bad for interest rates and vice versa. If you time your lock well that might translate into an eighth better on the interest rate.
- Whenever possible, I like to take advantage of a short term lock. Mortgage rates have been relatively flat for the last year.Our lock increments come in 15 day time periods. The shortest lock offers the best terms for the borrower.
- Don't waive escrows. This is your option when you have a loan under 80% loan to value but it costs .25% to fee when you do so. If the broker has to absorb this, that may effect your pricing.
- Don't be afraid to buy points. If you intend to stay in the home a long while it will make sense. Also in many cases the point is tax deductable. Do a cost/benefit analysis of paying the point or not paying the point.
- Believe it or not the state you live in will have an effect on pricing. This could be a little out of your control but it does weigh into the equation.
- Credit score, credit score, credit score. The absolute best pricing comes with a middle credit score of 740 or better. As the scores drop, the rate goes up.
- Try not to take cash out if you can help it. There are very large adjustments for cash out which are also sensitive to credit score. There is actually a trend in our country where one third of borrowers are doing "cash in" refinances.
- Live in the house. There are big adjustments for investment properties and in some cases second homes.
- Buy a single family residence. Some lenders don't like condos and especially high rise condos
- Prove your income. The days of stating income are pretty much gone but if you want to state income, be prepared to pay some points.
- Get your loan closed on time. Respond to requests for information from your loan officer as fast as you can. If your loan gets to the end of the process and you need to extend the lock, somebody has to pay for it.
- Don't get carried away with interest only or 40 year mortgages. These types of loans were sort of a fad 5 years ago but now many of the homeowners who took them out wish they didn't. Whenever we do this type of loan there is a hefty rate adjustment that only hurts you in the long run.
- Beware of mortgage companies that do 100% of their business on-line. Quite often these types of operations have the attitude of "burning and churning" or that of a hunter rather than a farmer. At First South Mortgage we hope to plant little seeds of happiness with every customer so it comes back to us in the form of referrals. Because we strive to receive your referrals, our goal is to make you so happy with the service that you received, you will be more than happy to refer our name to friends and family as you go on through life.
Whenever a customer approaches me with an estimate that they feel is lower than mine, I usually challenge them to fax me a copy. I then proceed to circle items that are overpriced and circle omissions that make the estimate appear less.
With the new Good Faith Estimate rules in use today, the mortgage lender basically guarantees the fees quoted for his company, the bank, the title company and the transfer fees of the state. This new estimate is literally something you can take to the bank!
Mortgage Do's & Don'ts
It is always good to be an educated consumer. Here I have made an attempt to touch upon key issues to remember.
Do - Remember that a good mortgage consultant or Realtor will not always agree with you. Part of consulting entails telling you things you don't know!
DO - Read all of your paperwork. About 15% of customers read all of their paperwork. It is important to know where all of the closing costs are coming from and also what is expected of you. If you have trouble sleeping at night this is a great cure as well. The paperwork you receive in the beginning of the process is very similar to the paperwork you will sign at the end of the process. The only major difference is that at the end of the process, you will sign a mortgage note and mortgage agreements which will get recorded at the courthouse.
DO - Ask questions.
Don't - Try to do your entire up front questioning by email. Yes we are living in the age of the internet but it is still important to have a thorough conversation about your loan with your loan officer. You will absorb so much more information and trouble shoot the pitfalls of your loan much better. An email will conquer one question at a time every hour. A conversation will conquer 25 questions in 10 minutes.
Do - Get a pre-approval letter before you go shopping with a realtor
Don't - Go shopping until you have a pre-approval letter in hand. Most good realtors will not begin the process with you unless they know you have been properly prequalified by a lender. This also helps your bargaining power and your ability to secure a low purchase price if the seller knows you are the real deal.
DO - Get a home inspection. Learn the hidden secrets of the home you are purchasing. Even if you are considering an "As is" purchase sometimes you are able to bring these problems into the negotiations with the seller and get a better deal. Especially if you are buying a foreclosure that the bank wants to unload.
DO - Discuss the concept of structuring your deal with seller paid closing costs. Your lender and realtor will need to be on the same page for this but by structuring your financing this way, you will keep more money in your pocket with a minimal effect on your final payment. This may put pressure on the realtor because he or she is trying to convince the seller what a strong buyer you are, but at the same time, you may have limited funds for closing. If you are buying a foreclosure, this should not be a problem because the banks understand this. Also in most cases you will want to put your own personality into your home and that involves trips to Home Depot which cost money.
Do - Give yourself enough time
Don't - Write your contract with a short closing date. Depending on the lending environment sometimes lenders will get backed up. At one point this year some banks were taking as long as three weeks to underwrite a file. Also if you are purchasing a foreclosure, there may be issues with title that slow down the process. If you write the contract with a lengthy closing date, you can always close early.
Do - Get professional help
Don't - Go shopping without a realtor. Their commission comes out of the seller side, so you have nothing to lose and a lot to gain because they will know the neighborhood and understand all of the legal ramifications on the contract. A good realtor will also knows the pitfalls that can occur along the way, so it always make sense to have them as council. Also a good realtor knows the game of negotiating a good price.
Do - Shop your Loan Officer
Don't - Use the sellers lender. It's just like going car shopping. You can usually get a better deal if you line up your own financing rather than using the dealer's guy. Competition works. Also you need to have at least one conversation over the phone. Usually from that you get a comfort level as to whether you want to work with that person or not.
Do - Notice the difference between your note rate and the APR on the Truth in Lending Form. I wrote a whole article about this one but the difference between the two is a measure of closing costs. http://www.huliq.com/1/84526/shopping-lowest-mortgage-rates
Don't - Be suckered into a deal where the rate is 1/2 a percent lower than everybody else. Every loan can be looked at with no points, paying a point or having the broker pay costs for you. But , there is no lender out there that is a full 1% better than the rest.
Do - When refinancing or selling your home, make your home presentable when you get a visit from the appraiser. Every little bit helps. On every appraisal, he will have to rate the condition of your home as excellent, good, above average, average, fair or poor. Also he will need to show the actual age and the effective age of the property. It's like going on a date, you want to look your best and make a good impression.
Do - Be nice to the appraiser when he comes to the door but don't try to impress him with your knowledge of the neighborhood.
Don't - try to chew on the appraisers ear as to why you feel your home is worth "x" amount. You are not a realtor and he probably would not listen to you if you were a realtor. If anything you can say nothing or point out the upgrades you have done since you have been in the home. Especially now the Home Valuation Code of Conduct, the appraiser is working for the bank, not you, so you don't want to get on his bad side.
Do - Hold on to your survey and your Owners Title policy. You will get three surveys at closing and the Owner's Title Policy will be sent back to you about 4 to 6 weeks after closing once your deed is recorded. These two items will save you money if you ever have need to refinance later. Lots of money!
Don't - Forget when refinancing to follow up on any overpayment of your payoff and the escrow balance held by your previous lender. A good lender will let you know approximately how much you will have coming back to you after closing in 4 to 6 weeks.
Do - Remember that builder contracts and foreclosure contracts are sometimes written in a one sided manner. Especially builders will put in clauses that push you towards their lender or Title Company. Most of the time these entities are owned by the builder and their fees are high.
Do - Remember when buying a condo that you are also becoming bound by the health of the entire homeowners association. If their budget is low you may be open to having an assessment or a jump in the monthly homeowners association dues.
Do - Shop your homeowners insurance. Start with the company you have your car insurance with; perhaps they can bundle the policies and save money. Check with at least one other agent because most insurance people have different ways of arriving at the same number. Checking around could save you a significant amount of money. Do this every year just to make sure your agent is on his toes.
Don't - Forget about hurricanes and tropical storms. If you are living in a place like Florida and there are hurricanes in the gulf, insurance companies will not bind coverage until the storm blows through. Lenders don't want to run the risk of your home getting demolished. Either bind the coverage early to avoid a delay in closing or wait for the storm to blow though. Hopefully there will be no conflict with your contract or your lock of the interest rate.
Do - Compare your Initial Good Faith Estimate with the Final Closing Statement. They are supposed to be with $200 of each other. Quite often the major differences are due to estimates on escrows but still, compare each line item and ask questions. A good lender will get you a copy of the final closing statement well before the closing.
Do - Refer your Mortgage Consultant and Realtor to friends, family and co-workers. that is one way that helps us keep helping others.
Do - Stay in Touch. You never know when there is an opportunity out there that can save yourself some money.
Frequently Asked Questions:
Do you have any up front fees? No. The only up front fee is that you pay for the appraisal when the time comes. If you are doing an FHA loan, you will send the appraiser a check. If you are doing a conventional loan, you will need to provide a credit card number which the lenders appraisal management company will debit.
How long does the process take? Lenders have slowed down the process. Best case scenario I would say two weeks. A large part of the equation is the borrower. Is the borrower organized and quick to forward the necessary paperwork.
Does being self employed make it harder to get a loan? No Just as long as we are able to show the same line of work or a work history of at least two years we are O.K
Can I use my part time job to qualify? We can use a part time job as long as you have steadily been working it for at least one year
Can I use my overtime to qualify? Same rule. We will need to show that overtime is consistent and has taken place for at least one year.
Why should I use a realtor? If you are buying, the realtor commission comes out of the sellers side, so it doesn't cost you anything. If you are selling, most likely the Realtor will help you get a better price for your home. In each case, the Realtor will explain legal issues and help with the contracts that bind you
Should I get a home inspection when purchasing? Yes. Even if you have entered into an as-is contract. the inspection is typically done before the appraisal and will reveal hidden secrets about your home. If there are major issues, your Realtor can take the laundry list of problems back to the seller and renegotiate a better price.
What is the difference between pre-qualified, pre-approved, approved etc ? If you are purchasing you always want to have some sort of a letter from a mortgage professional that shows that your profile has been looked at and you are in a position to buy. This will help your Realtor negotiate a better deal for you. A pre-qualification letter is when I have discussed your file and pulled your credit and it looks good. A pre-approval letter is when I have received your proof of income assets and debts and run your deal on-line through one of the many underwriting engines. e.g Fannie Mae, Freddie Mac or FHA. You are fully approved when I have sent your file to a bank and the source has validated or agreed with me that your loan falls within the parameters of the program.
When is my loan locked? I will not lock a customer until they actually apply. That means when I receive signatures on compliance forms and proof of income and assets. If I lock when I issue paperwork, sometimes the customer drags their feet and it effects my ability to guarantee the rate.
I am not buying a home for 90 days, when should I start putting my file together? Now. It is best to get your ducks in a row early so you are an expert by the time the purchase rolls around.
If I go directly to the bank, can't they give me a better deal? No. I utilize the wholesale channel of a bank and if you go directly to the bank, you are using their retail channel. By definition wholesale prices are better than retail prices. I created a YOUTUBE video about this. http://www.youtube.com/watch?v=WK0z4jzXRTo
How do I know I am getting a good interest rate and a good estimate? Check the difference between the note rate and the APR. The more fees and closing costs associated with your loan, the larger the spread between these two numbers. Also beware of an estimate that omits certain closing fees or escrows of taxes and insurance. These costs simply don't go away if we do not include them on the good faith estimate. I have written a few articles about getting a Good Faith Estimate.
Is it much more difficult to get a loan now? Maybe. I think for homeowners who are trying to refinance it has gotten more difficult because values have dropped which makes the loan tougher. But from a standpoint of purchasing we have several 100% financing programs & FHA which is 96.5% financing at a great rate! I even have a $100 down program for the purchase of a HUD foreclosure.
Why should I go with you? Besides my stunning good looks, I have 15 years of experience and have been trained by some of the most knowlegable people in the mortgage business. I still do business the old fashion way, where every customer is treated well and considered a referral source for life. There are two types of lenders in this world, hunters and farmers. In stead of hunting and looking for a kill I prefer to plant little seeds of friendship that comes back to me ten times over. Ask any of my previous customers.
How do I know if my credit profile is good enough to get a loan? Really this is my job. As a rule most lenders like to see at least a 640 credit score these days. Although I should say that I have options with sources as low as 580 middle credit score. Also, I have a number of tools that I can use that will repair credit in as little as 5 business days.
Can I get a loan if I have no credit? Yes. There are still a few sources that allow us to build a credit profile with alternate forms of credit. E.g. Pay your rent with a check so you can prove it later, pay your phone, electric, cable, car insurance on time so we can prove it later. If you ever finance furniture, computers or a car at a buy here, pay here establishment, we can use that too.
What if I have a bunch of charge offs and collections? Whenever we do a loan we run the deal on line to an automated underwriting engine. The feedback will tell us if the particular source is requiring us to payoff a debt. Sometimes it is up to underwriter discretion. If your collections are medical, we most likely will not need to pay them off. If they are judgments, absolutely yes we will need to get them off the credit report before you can do a loan. In some cases I can help you settle collections at 25 cents on the dollar.
Should I consider getting a co-signer? This is something that we always can consider, especially if the co-signer has good credit and savings and little debt and intends to live in the home. If you are doing an FHA loan, and we have a non-occupant co-signer then between the two of you, you will need to put 15% down instead of 3.5%.
I am having a problem finding the right home because they are being snatched up so quickly This is becoming a problem again because many believe banks are holding back their supply of foreclosed properties from inventory. Before you go house hunting you need to be properly pre-qualified by me so I can give you a pre-qualification letter. If you are having a hard time finding the property, #1 always work with a realtor. Their commission is taken out of the seller side of the closing statement. Sometimes a buyer’s agent loses momentum with you as time goes by. If you feel that happening, switch agents. It may be a case where you are asking the unattainable or maybe the realtor isn't jumping high enough for you.
Where can I apply on line?
Call Preston Ware 561-329-0075