What you need to be prepared for when you begin your home search

Written by Ryan Morgan on . Posted in Buying

Preparation Leads to Success concept on a notice board

We often see people come in with a variety of different expectations when it comes to the home search and the pre-approval process. One of the most important things that will be a part of the process for you, is managing your expectations and being thorough.

The first step should be engaging with your loan officer. This will help guide you in the right direction as you search for your home and it’s important to know what’s available for you in terms of loan programs, down payment options, rates, closing costs and any other costs that may be associated with the loan. Closing costs will depend on the loan program you choose and there are several costs outside of your down payment that you should be expected to be prepared for. Once you’ve thoroughly reviewed your goals and available loan programs, you should move onto the next step.

If you are not working with a realtor, you should be! See KCM’s article on some of the reasons why here. Your realtor can provide a variety of services that you may not be aware of. Most people look online through various online databases when searching for a home, and there are many problems with this process. Your realtor can give you access to off market properties, local knowledge, and many other pieces of information that are not readily available. If you are not working with a real estate professional than you are doing yourself a disservice. If you are looking for a trusted real estate professional, but do not have one, please consult your loan officer for guidance.

Once you’re past this point, identify potential properties for your loan officer. This is helpful because it allows them to provide real scenarios for you and tangible numbers to review. You can see a variety of options for loan programs ranging from down payment, to rate, to closing costs, to prepaids and escrow items, to your monthly payment.

”What do closing costs consist of?”

Written by Ryan Morgan on . Posted in Your Questions

Question: “What do closing costs consist of?”    -Brandon | Duxbury, MA

Answer: Your closing costs are made up of several fees that are incurred in conjunction with your loan. Many are simple and self explanatory such as appraisal fee, credit report, underwriting fee, attorney’s fee while some are typically less well known such as title insurance, title exam, plot plan, municipal lien certificate. As compliance requirements increase, as well as verification requirements, many of these costs are included in your closing costs. You should always ask for a specific itemization of your closing costs in order to walk through them with your loan officer and fully understand what comprises them.

“Who do we use for homeowners insurance?”

Written by Ryan Morgan on . Posted in Your Questions

Question: “Who do we use for homeowners insurance?”    -Jackie | Braintree, MA

Answer: Your homeowners insurance policy and who you use is completely up to you, the borrower. Insurance companies have many different requirements and criteria when they come up with pricing your homeowners insurance policy.  You can expect to pay the first year’s premium up front, so you have effective coverage in place for the day you close. Going forward, that expense will be paid out of your escrow account any time a bill is due.

“How long does the closing process typically take?”

Written by Ryan Morgan on . Posted in Your Questions

Question: “How long does the closing process typically take?”    -Matt | Marshfield, MA

Answer: On average, most closings are approximately 45 days from the signing of the P&S until the close. In certain cases they can be as quick as 30 days or as long as 60 days. When considering the time frame, you should always communicate with your loan officer and realtor so the time frames can be properly managed.

”What comprises my escrow account?”

Written by Ryan Morgan on . Posted in Your Questions

Question: “What comprises my escrow account?”    -Sarah | Hanover, MA

Answer: Your escrow account is comprised of your real estate taxes, homeowners insurance, flood insurance, and when applicable your mortgage insurance.

Each month you pay 1/12th of your annual taxes and insurance into your escrow account. Your quarterly tax payment and annual insurance payment are then pulled from your escrow account so you do not have any surprises pop up. Because your taxes are paid quarterly, homeowners insurance annually and mortgage monthly, they are on slightly different cycles.

At closing, you should expect to fund your escrow account with 2 months of taxes and 2 months of insurance so there is a sufficient cushion. Whatever money goes into your escrow account is considered your money, should you refinance, sell or pay off the mortgage, that money is returned to you from the mortgage servicer.

What sets interest rates?

Written by Ryan Morgan on . Posted in Resources

Interest Rates Falling or Rising

There are several factors that impact what interest rate is available. On a personal level, your down payment, credit score and property type are the biggest factors. One a bigger scale, interest rates are set by investors via Mortgage Backed Securities. Two factors that are the most influential happen to be economic growth and inflation. The markets are set on the MBS level and then rate sheets are handed down to banks and mortgage companies.

To you, the borrower, that means your mortgage company or bank is not setting the market for the interest rates, and ultimately regardless of where you go, you’re going to get similar rates for most products. Not all banks and companies have access to a full variety of programs so it’s important to understand the dynamics of each individual program in order to decide if it’s the right fit for you.

One advantage that mortgage lenders and brokers have over your local bank, is that they see rate sheets from several investors, so they are able to shop your deal around and so who has the best program and rate for you as opposed to banks, who have access to their products and their products alone.

What documents can you expect to have ready in order to obtain a quality pre-approval?

Written by Ryan Morgan on . Posted in Resources

 

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It is extremely important that when you receive your pre-approval letter, due diligence has been done. Part of the underwriting process, and a large part at that, is examining your income and documenting the most recent 2 years of employment in order to prove you have the ability to repay the loan. Some people’s pay is simple and straight forward, some people’s are not so it is important for your loan officer to review all of your tax documentation from your W2s and pay stubs, to your tax returns (all schedules!) If you are paid a salary, it is viewed differently than commissioned income, bonus income, etc and you want to ensure that the income being used to calculate your pre-approval is accurate and verified.

Below is a list of the items you can expect to provide:

  • Most recent pay stubs (one month’s worth, consecutive)
  • Federal tax returns and all schedules
  • W-2’s
  • Bank statements for all accounts for the last three consecutive months (savings, checking, passbook, stocks, 401K, IRA, mutual funds, etc.)
  • Employer’s names, addresses, and phone numbers for the last two years
  • Book and page number and deed of subject property
  • Purchase and sales agreement on the house you are buying
  • Purchase and sales agreement on the house you are selling
  • If self employed, a year to date profit and loss statement
  • For a corporation/partnership, the last two corporation/partnership tax returns
  • Loan information on any other real estate owned (mortgages, copy of lease, copy of insurance bill, most recent tax bill)
  • For Virginia: DD214 or VA certificate
  • If divorced, separation agreement and one page NISI
  • If bankruptcy has been declared, all bankruptcy documents
  • If building, a copy of the plans and specs for appraisal

In addition to this, we may be required to have your employer supply a verification of employment form, itemizing pay. Also, remember to bring your application fee. Single family fee: $450. Two family fee: $575. Pre-approval: $0. Your application fee will be credited back at closing.

What programs are available for a multi-family home?

Written by Ryan Morgan on . Posted in Resources

 

Georgian Style Duplex House in Savannah Georgia

Multi-family homes, whether it be a 2 unit, 3 unit or 4 unit are a popular and effective way to build wealth and equity. If you are buying a multi-family home for investment purposes and do not intend on living there, you are most likely going to need to put 25% down to satisfy Fannie Mae and Freddie Mac requirements.

If you plan to occupy one of the units as your primary residence, you can get into a 2 family with 15% down on a conventional product and as little as 3.5% down on an FHA product for a 2 family, 3 family or 4 family.

This allows great flexibility for the prospective buyer. A big advantage for an FHA product on a multi-family is fairly obvious where you are allowed to have a much smaller down payment. The other is the rates are significantly lower in most cases. Typically on conventional loan programs, there is an adjustment to rate for a 2 unit, 3 unit or 4 unit property. On FHA multi-family properties, you do not have the same rate adjustment. Whether it is a single family, condo, 2 unit, 3 unit or 4 unit FHA offers the same rate for you the borrower. Consult your loan officer for more information.

What if I cannot find my tax returns or W2s?

Written by Ryan Morgan on . Posted in Resources

W-2 Form

You may have recently moved, or simply misplaced your tax documents for years prior. This is not a terminal problem. Your CPA typically has easy access to your tax records. Your employer has access to your W2 documentation and should neither of those plans work for you, you can contact the IRS directly for a copy of both your W2s and your federal form 1040.

If you are unable to locate any tax documentation from the prior 2 years, please contact the IRS and request a copy of your prior year’s tax forms.

How do you obtain FHA financing on a condo?

Written by Ryan Morgan on . Posted in Resources

 

Apartment Building

If you are in the market for a condo, FHA financing might be a great option for you. Most people are not aware that if you are putting down less than 25% on a condo, there is a rate adjustment that you’ll be facing. Typically it is 75 basis points (usually equates to 1/4% in rate), but depending on FICO score it can be more significant than that. FHA is a great way not only to get into a condo for 3.5% down with NO rate adjustment, but to have more flexibility for rates and closing costs, allowing you to make the right choice when it comes to your loan selection.

What happens when the condo you are looking to finance is not FHA approved? This is not a terminal problem, FHA approvals typically last for 2 years. If your prospective condo is not approved, we have experience in getting your project approved. The process entails collecting the required documents that FHA reviews and submitting those documents to the local field office for underwriting and approval. Typically, this process takes about 30 days once submitted.

If you are looking to buy a condo and you want to explore FHA approved projects, consult your loan officer to examine your options. FHA may or may not be the best choice for you, so it’s important to examine your options and ensure you’re pursuing the best loan program for you.

Find a list of approved FHA condo’s in your area.

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Phone: 781.982.3500
Fax: 781.982.3511
Email: pboretti@mortgagecorpeast.com

Mortgage Corp East
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Rockland, MA 02370

 

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