Mortgage Costs Associated with Buying a Home

Buying a home with the help of a loan comes with other costs. The costs associated with financing a home should be part of your budget. These mortgage fees come under the umbrella of your closing costs and are typical of most loans. You can expect to pay 2% to 5% of your loan amount in closing costs.

There will be fees that you pay directly to the lender. The loan origination fee and any discount points to bring the interest rate down are usually percentages of the loan amount. The lender will also require a loan processing fee, an underwriting fee, a cost for document recordings and fees for any wired funds. Application and credit report fees are included as well. If your loan is an FHA loan, then you will be charged an up-front mortgage insurance premium.

Depending on what an individual state requires, there will be a fee for a lender’s title insurance policy, which insures any defects that may not have shown up in a title search and is also a cost to you. This may be in addition to the cost of a homeowner’s title insurance policy if the seller is not paying for it.

Third-party closing costs may include an appraisal fee, the cost of a survey, attorney fees and a charge for a title company representative to supervise the closing and title transfer.

At closing, there may be additional charges associated with prorations for property taxes, homeowners and mortgage insurance and HOA fees. The lender may also require you to deposit funds into a reserve or escrow account to cover upcoming taxes and insurance.

Call or email me to get an idea of exact costs in your area or for a specific price range, and let’s find the loan that works best for you.

Here Are the Ins and Outs of Lender Overlays

Lending and underwriting guidelines set forth by Fannie Mae, Freddie Mac and FHA are what they consider acceptable qualifying factors for successful loan origination for lenders. These guidelines are based on historical profiles where loan repayments were made without default and those where repayment was least likely to occur over the term of the loan.

Lenders may view the underwriting parameters as being not stringent enough and will impose more strict qualifying requirements called overlays. For example, where HUD requires a minimum 580 FICO credit score with a 3.5% down payment to qualify for a FHA loan, a lender may bridge the loan repayment risk with an overlay FICO requirement of 620.

Another typical overlay might be the borrower requirement to pay off all outstanding debts prior to loan commitment, even though it is not an FHA underwriting condition. An increase in Fannie Mae, Freddie Mac or FHA recommended debt-to-income ratios is also a possible overlay imposed by a lender.

Even though a borrower may qualify for a loan under the parameters created by these programs, a final loan commitment will always be subject to what the lender overlays require. If the borrower can’t qualify with one lender, it doesn’t mean the loan cannot be approved through another lender.

As your lending partner, you have my assurance that I will make every effort to make a home purchase a reality for you. I am always here to help. Call or email me for an appointment to start the process.

Thinking of Buying a Home? Start Lining Up Financing Now

Your number one priority before you begin your new home search is to meet with a mortgage professional to determine what you are qualified to buy. In a competitive seller’s market and with rising interest rates, you want to be preapproved and know what price point you should target in your search.

Even if you feel that your credit score is high enough to get the loan of your choice, be prepared to provide documentation that attests to your creditworthiness. You will need to show us, your mortgage consultant, everything that verifies your income and assets. If you constantly stay on top of your personal documents, then lining up your financing at any given time should be much easier.

We will look at your debts and may recommend that you pay off or pay down some debts even though you have been timely in your payments. Lower debt will improve your debt ratios. Since this may take some months to accomplish, it is important to start the loan process as soon as you can.

By enduring this preapproval process, you can narrow your home search to homes that you can comfortably afford. A successful preapproval gives you a written letter that you can give to your real estate agent showing that you are a qualified buyer and in what price range. Many agents don’t want to spend time taking prospects around to homes unless they produce preapproval letters.

This information should help you make the decision as to whether or not you are ready to start house hunting. A call or email is all we need to get things in motion for you and get your financing in order so you can be a strong buyer. We’re always here to help.

The History of How 30-Year Mortgages Came to Be

The 30-year mortgage has roots as far back as the 1920s. During this era, a home purchase was financed as a five-year loan with a 50% down payment and a balloon payment at the end of the five years. Since most borrowers wanted to remain in their homes, they had to keep refinancing the loan balance into another five-year loan until it could ultimately be paid off.

These loan terms made it difficult for most people to buy homes because it was hard to come up with 50% down. Fortunately, the advent of the Great Depression in the 1930s motivated the creation of 30-year mortgages because it was felt that buyers could better afford the payments that 30-year mortgages created and that younger buyers could pay off the mortgages before they retired. The 30-year mortgage increased homeownership because more people could qualify to buy homes.

As time has evolved, so have mortgage offerings. Even though people move more often today, the 30-year mortgage is still the loan of choice because the payments are more affordable. For those seeking to pay off their mortgages in a shorter period of time, there are 15- and 20-year options. While the interest rates are lower over the life of these loans, the payments will be higher.

As your mortgage professionals, we can review your financial status and present to you your mortgage choices to determine which loan best fits your needs. Call or email us today.

4 Home-Buying Myths You Should Know About

There are several home-buying myths that have often dissuaded potential home buyers from looking for homes. Being aware of these myths will make you more confident in your ability to purchase a home.

1. You can get a loan with less than 20% down. FHA, VA, USDA and other government-sponsored programs will originate loans with as little as zero down. You can also receive gifted funds from relatives or friends to increase the amount of your down payment to help you qualify.

2. Having a low credit score doesn’t necessarily disqualify you from getting a loan. Increasing your down payment to 10% with a credit score as low as 500 may allow you to get an FHA loan. The larger the down payment, the less risky your loan will be for lenders. A cosigner will also reduce how risky the lender perceives you if your credit score is low. Be sure to check your credit report for any correctable errors that may be influencing your score.

3. You don’t get your loan just because you have been preapproved. Once you get an accepted offer, followed by an appraisal and more documents to your lender, you still won’t have the loan. The loan is yours when underwriting gives the final approval, you sign the loan documents and the sale closes.

4. It’s not all about the interest rate. Compare different rates with the loan terms and up-front fees. Big up-front fees may cost you more than the difference in interest between loans. The annual percentage rate (APR) will be the determining factor in what loan may be best.

You can be assured that your best interests will be first and foremost when it’s time to begin the loan process. Call or email us, and we will put together a loan program with the interest rate and terms that work best for you.

What Documents Do I Need for a Mortgage Preapproval?

The first step to home buying is to connect with a lender and get preapproved for a loan. It is a time-consuming and challenging process due to the amount of documentation that we will require to get you preapproved.

Your diligence in providing us what we will need will pay off when it comes time to submit a purchase offer. Real estate agents always encourage including a mortgage preapproval letter to add strength to the offer. Once you have an accepted offer on a home, satisfying your loan contingency will then be much easier.

For most conventional and FHA loans, here are several of the documents that you will need to submit for a preapproval: a state or federally issued ID, proof of income in the form of pay stubs or W-2s, your two most recent federal tax returns, the last two statements for bank and investment accounts, any settlement statement of a recent home sale, a gift letter for any down payment assistance, any marriage settlement agreements and a letter of explanation for any questionable items on your credit history.

For self-employed home buyers, we will also request two years of 1099s and company tax returns, two months of profit-and-loss statements, a balance sheet and your current business license.

As your lender, our goal is to keep the mortgage preapproval process as streamlined as possible. We can guide you in the document-gathering process to make sure you have what you need. Call or email us today. We are always here and ready to help.

Know What You Can Actually Afford Before You Shop

Before you jump in the car and begin your new home search, it is crucial to first determine what you can afford. Since a home purchase will likely be the biggest investment you will ever make, you will want to carefully evaluate what your needs really are and if your budget will comfortably cover those needs. Ask yourself these few key questions before you meet with a lender or a real estate agent.

Beyond just the bedroom and bathroom count, evaluate what you need in living spaces for the present and into the future. Is a formal dining room or a separate family room a necessity? Will additional bedrooms be a part of the future if your family is still growing? These extra living spaces add to the square footage and impact the purchase price you must budget for.

Consider what you can realistically afford for your monthly housing cost. Ask yourself if your anticipated budget will remain comfortable even as your family’s needs change. Along with this thought process, look ahead at your income projections to see if increasing monthly expenses will be offset by your ability to have higher income in the future.

It will also be important to have a good idea of how much you can save every month so you can cover any possible loss of income or gaps in employment during the time you own your home.

Once you have satisfied yourself with what you feel you can afford, the next step is to contact me so I can help you get started with a loan preapproval based on tangible numbers. With your preapproval, you can then begin your home search knowing that both your personal needs and budget will be met. Call or email me today and we can get you started.

Understanding the Appraisal Process and What It’s All About

A home appraisal is part of the loan approval. Your lender will need to determine if the home you are buying has the same value as the agreed-upon purchase price in the purchase agreement. An appraiser will be hired to determine the worth of the property.

To eliminate any undue influence on the appraisal process, the appraiser must be assigned by an independent third party and cannot have direct contact with the lender.

The task of the appraiser is to arrive at an indicated value of the property by researching comparable sales within the same geographical area. The sales should be recent and have closed within the last 90 to 180 days. Typically, the appraiser will pull the comparable sales from an online database prior to visiting the subject property.

In addition to obtaining the square footage and bedroom/bath count, the appraiser will note any adverse condition issues with the subject property that may affect the lender’s ability to lend on the property.

After visiting the property, the appraiser will make value adjustments to the comparables where they differ from the subject property: for example, in square footage, bedroom/bath count, condition or location. These adjustments help the appraiser arrive at a value.

Once a value is determined, the appraiser submits the report to the appraisal management company (AMC), so it can be given to the lender. Any questions about the appraisal must be directed to the AMC.

I can further explain this very important part of the underwriting process for your mortgage, and I am just a call or email away.

Buying a Home? Here Are Costs You Can Expect

Congratulations, you are ready to buy a home! The purchase price is easy to find, but there are other costs associated with a home purchase, especially if you are financing the transaction. These are some of the most common costs in a purchase transaction.

Lender Fees. These fees are paid directly to the lender at closing. Many of them will include origination charges (processing, underwriting and cost for the rate). Government loan programs also have additional fees, such as upfront mortgage insurance premiums for FHA loans and funding fees for VA loans.

Third-Party Fees. The fees are paid to nonaffiliated vendors in the transaction, and some, such as the appraisal fees, must be paid up front at the beginning of the transaction. Title and escrow companies also charge fees for their services.

Attorney Fees. These are also an associated cost in states that require attorneys to be present and review documents at closing.

Home Inspection Fees. These are often not mandatory but should be strongly considered for such a large investment. Paying for a home inspection will give you a much better idea of the condition of your home, such as the plumbing, foundation and sewage system.

Reserve Requirement. Reserve requirements are not fees but are still costs in the home-buying process. If you are impounding (escrow) your taxes and insurance, there has to be enough in the account to pay your tax and insurance bills when they are due. Depending on the time of year your loan closes, this could be a significant cost. Your mortgage payment will take smaller portions monthly that will later be applied to your taxes and insurance, but you will still need to pay money at closing to ensure adequate funds.

To learn more about the specifics of these costs, call or email me, and I will go over the details.

Prepayment Penalties: Should You Be Concerned?

A prepayment penalty is a clause in a mortgage contract stating that a penalty will be applied if the borrower pays off or significantly pays down the mortgage before term, usually within the first three years of committing to the loan. Sometimes the penalty is a certain number of months’ worth of interest. Sometimes it is based on a percentage of the remaining mortgage.

Prepayment penalties were originally designed to protect the lender from people refinancing repeatedly when rates fluctuate. It is costly for lenders if you pay off or significantly reduce your mortgage balance. The income the lender makes is generally a payment stream over time, so if the loan is paid off early or reduced, this limits their income. This is especially true if the lender is also the servicer of the loan (who you make the payments to). In order to incur a penalty, buyers would usually have to pay off a significant portion of the loan very quickly.

A typical example is to pay 20 percent of the loan in one year. On a $100,000 loan, this would require paying down $20,000 in 12 months. A homeowner paying even $1,000 per month extra on the principal would fall well short of reaching that point.

Does your mortgage have a prepayment penalty? Most likely, it does not. After the mortgage reform bill (Dodd-Frank) in 2010, the penalties became illegal on most residential mortgages. Chances are if you started your loan after July 2010, you are most likely free of any worries about prepayment penalties. However, certain types of mortgages may still have them.

If you are worried that your mortgage might have one, a quick call to me is all it takes to find out. I am always here to help.