Why is there so much paperwork involved in the process?

Written by Ryan Morgan on . Posted in Mortgage 101

Close up of a mortgage application and a pen

Whether this is your first time going through the approval process, or your 10th, odds are it is different than it was the last time you did so. There are two main reasons for this:

  1. The government has set forth new guidelines that now demand the bank to prove beyond any doubt that you are indeed capable of affording this mortgage and showing an ability to repay the loan. Leading up to the housing collapse, many people and families were approved for loans that they were not capable of sustaining. The government is looking to ensure this does not happen again
  2. The banks do not want to be in the real estate business. Over the course of the housing bubble and collapse, banks were forced to take on the responsibility of liquidating millions of foreclosures and negotiating millions of short sales. Just like you, I and the government, they do not want any more foreclosures and they avoid this by double checking everything on your application as well as looking for 3rd party verification for most important pieces.

One can argue that the banks clearly made the mistake of being too liberal in the guidelines over the past decade, and now could potentially be erring on the side of caution with the conservatism, but there is a silver lining to this. If it were not for the housing collapse, banks would not be as strict as they are on their paperwork requirements, and many people would not be able to obtain a mortgage with an interest rate at a historically low levels. Rather than focus on the additional paperwork and documentation requirements, let’s be thankful that we are able to purchase homes at these low rates.

Why work with a lender or broker over a local bank or credit union? 

Written by Ryan Morgan on . Posted in Mortgage 101

couple is considering future apartment design

This is a very common question. While local banks can be great, their product selection can be incredibly restrictive. They work with their products and their products alone. If their particular product serves your needs, it may be a great fit. If it does not, you won’t have access to a full array or programs and options. A broker or lender will have access to dozens of investors and loan servicers, each of which will offer a variety of products. This allows you to evaluate options and ensure that whatever program you decide to pursue, is suited for your unique set of needs and your individual situation.

How do you know when you have received a thorough pre-approval?

Written by Ryan Morgan on . Posted in Mortgage 101

Bad news on letter

Many loan officers vary as to how they like to perform this piece of the puzzle. If your loan officer is not asking you for the following, then you may want to seek a second opinion.

  • Most recent 2 years of complete federal and corporate tax returns
  • Most recent 2 years of W2s
  • Most recent one month’s worth of pay stubs
  • Most recent 60 days worth of any bank statement, 401K, investment account, CD, assets, etc.
  • If you own any other real estate, you should be expected to provide mortgage statements, tax receipts, and homeowners insurance evidence
  • If divorced, a copy of a recorded divorce decree or notarized separation agreement
  • Employers names and address for the most recent 2 years

What are the true costs of buying a home?

Written by Ryan Morgan on . Posted in Mortgage 101

House money and calculator.

Typically there are 5 main pieces of buying a home when it comes to your up front cost:

  1. Your down payment: This vary depending on your eligible loan programs, but typically a minimum down payment is required of at least 3.5% of  the sales price of your home.
  2. Closing costs: this will also vary depending on your loan program, but you can expect anywhere from approximately $3,000 to $5,000 depending on your loan amount and loan program.
  3. Escrow and prepaid items: Most people do not take into account this piece of the puzzle. At the time of settlement, you’ll be responsible for any taxes due on your property, any prepaid interest due, as well as setting up an escrow account for your real estate taxes and home owners insurance. Typical escrows will include 3-5 months of real estate taxes and 2-3 months of homeowners insurance.
  4. Homeowners insurance: your homeowners insurance is required to be paid in full prior to closing, ensuring that your home has full replacement coverage should disaster strike.
  5. Final adjustments: Your new home may have balances due for water, sewer, oil, gas, or propane. These can be surprise fees that many people do not anticipate, but are very common.

What are closing costs and how much can I expect to pay?

Written by Ryan Morgan on . Posted in Mortgage 101

ClosingCosts-new

There is a lot that goes into the approval, process and approval of your mortgage. Much of this is done behind the scenes, so when you are evaluating your closing costs there are typical fees that you can expect to see.  Closing costs vary depending on your loan amount and can range from $3000-$5000 for most loan programs. Certain loan programs require different closing costs so ask your loan officer if you are uncertain!

Most common closing costs include:

  • Bank Fees/Origination Charge: included in this fee is underwriting fees, processing fees, tax service fees, IRS verification fees, warehouse fees and MERS fees
  • Appraisal Fee: This fee is to pay an independent appraiser to perform an opinion of value on your home. It serves to protect both you and the lender and ensure that the home’s value is not less than you are paying for it.
  • Credit Report Fee: a large part of the underwriting process involves credit. Beginning from verifying your FICO score to updating any accounts as needed throughout the process.
  • Flood Certificate: Your lender will need to verify that your home is or is not in a flood zone. If in a flood zone, it’s likely that flood insurance will be required by your lender.
  • Attorneys Fees: Your closing attorney will be doing an incredible amount of work for the closing process. Starting from your title exam, to your municipal lien certificate, to providing title insurance for your home.
  • Recording Fees: At settlement, you will record a mortgage and a deed to evidence that you own the home. This is when your ownership becomes officially a matter of record.
  • Plot Plan: The attorney will obtain a copy of a plot plan to evidence that the boundaries of your property are approximately where they should be. This is not exact, but gives a rough idea. Should anything look out of the ordinary then you would be able to obtain a survey to verify your lot lines.

Dos and don’ts when applying for a mortgage

Written by Ryan Morgan on . Posted in Mortgage 101

Dos and don'ts when applying for a mortgage

Do:

  1. Notify us of any income changes! Please notify your loan officer if there are any income changes, for better or worse, as it affects the underwriting process and the necessary documentation that is required.
  2. Keep documentation for any large or irregular deposits!  Underwriters will need to verify any funds in all accounts being used for the transaction. You should keep copies of any checks deposited, bank statements to verify a transfer and you should have letters ready to explain any large deposits.
  3. Pay bills on time! As your closing date approaches, credit supplements or credit updates may be required. One late payment can potentially decrease your score up to 100 points.

Don’t:

  1. Apply for new credit of any kind! Every time your credit is pulled, your lender is notified and the underwriters may be required to investigate. Additional debt or a credit score change can alter not only the amount that you qualified for, but eligible loan programs and rates.
  2. Over charge your credit card! Lenders are required to check your credit immediately before settlement. An increase in credit balances can negatively impact the final steps of the loan settlement. It is wise to keep your balances below 50% of your maximum limit.
  3. Change your employment! Should you decide to quit or change your job, it would impact your income and could potentially jeopardize your approval. If it is something that is incumbent, please notify your loan officer immediately!

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