OVERVIEW FINANCING




MORTGAGES

More about mortgages and preparing for obtaining your financing...

REALIZING YOUR.DREAM


In getting to your goal, there are many options for you to consider. Preparation and taking the right steps in the right order may also be required to get you there. It's not as difficult as it might seem--especially if you give yourself the best possible chance for success. Let's take a big-picture look at how to streamline the process and get you there on a smooth road.

THE FINANCING.OVERVIEW


GETTING STARTED
Start By Creating Your Buyer's File

This should contain copies of all of your important financial documents. Regardless of the loan type, lenders will need information about you and your finances. Make copies of the normally required financial documents:
- any financial statements
- bank account statements
- investment account statements
- credit card statements
- auto loan statements or payment coupons
- recent pay stubs (at least 60 days)
- and two years tax returns.

Check Your Credit Rating

FICO® score ranges vary — they can range from 300 to 850 or 250 to 900, depending on the scoring model — but higher scores indicate that you may be less risky to lenders. As scores get into the higher ranges it can possibly help get you a lower interest rate.

Here is the contact information for the 3 major credit reporting agencies to help you determine your credit rating. Ask your lender or mortgage broker how to improve your credit score if you need to. Going forward, guard your credit standing as if it was a very large pile of cash.

Equifax   http://www.equifax.com   (800) 685-1111
Experian   http://www.experian.com   (800) 392-1122
Trans Union   http://www.transunion.com   (800) 888-4213

Savings & Debt

If you are planning to buy real estate, try to accumulate funds towards your down payment, closing costs (appraisal, survey, miscellaneous fees, escrow, title insurance, etc.) and other pre-closing expenses such as inspections. Moreover, try to pay down existing revolving and high interest rate debt like credit cards.

Stay The Course

Now is not a good time to change careers, move your money around, buy big ticket items or apply for other credit like car loans or additional credit cards. Lenders like stability. So if you are considering any major changes, it pays to meet with a lender and ask them how to proceed before you make any changes! If you are tempted to buy a big ticket item, consider the following:

A $500 a month debt payment (like a credit card or auto loan) could lower the amount of home you can afford by about $83,000! *

* Based on a 30 year mortgage at a 6% interest rate.


SHOP FOR A LOAN
How to Find a Lender

Today, lenders can be found through a variety of sources. In addition to inquiring with lenders you know of, you can also find lenders, their rates and often loan initiation costs on the internet on sites like www.bankrate.com and similar websites. You can also apply to lenders directly over the internet. Your real estate Agent likely can offer you referrals based on previously working with certain lenders or mortgage brokers. We would be happy to suggest lenders and mortgage brokers we have had successful transactions with.

Choosing the Right Lender

Inquire with or interview several lenders to evaluate key points:

  • Ability to explain things clearly and return your phone calls in a reasonable time period.
  • Competitiveness of interest rates, loan origination costs, and other costs & fees.
  • Availability of loan programs that suit your credit profile and desired property.
  • A description of their underwriting process, where the underwriters are located (local?), and if the loan approval committee understands the kind of property you are buying.

Choosing the Right Kind of Loan

Today there are so many types of loans on the market that it is beyond the scope of this writing to list or explain them all. Your lender is the best person to help you select a loan program to suit your needs. Below is a summary of the three most popular loan types we see in current and successful transactions.

  1. Fixed loan: The fixed rate loan assures your monthly payments will stay the same over the life of the loan, which is typically between 15 and 30 years. Fixed rate loans may be best if you intend to hold the property for a long period of time, say over 7 years.
  2. ARMs (adjustable rate mortgages): ARM’s may be suitable if you plan to sell or refinance your home within the next few years. The starting interest rate is typically lower than a fixed rate loan, saving you money initially. However, it is important to understand the index, the readjustment interval, the capitalization rate and downside risks of an ARM before making a final decision to use this type of loan.
  3. Intermediate ARMs: Also called Hybrid Loans, these loans can offer fixed interest rates for the first 3, 5, 7 or 10 years after which the interest rate adjusts with the market every 6 months or year thereafter.

KNOW YOUR NUMBERS
Credit Report

Typically, it costs around $50 to check your credit. With your permission the lender will order a review of your outstanding loans and your repayment history from one of the third-party major credit reporting agencies.

Application / Processing Fee

This cost, typically a few hundred dollars, is charged to cover the lender’s work to evaluate your ability to repay the loan. Some lenders will credit this back to you upon a successful closing. Always ask.

What is APR?

When you’re taking out a mortgage there are two numbers that reflect mortgage costs: the interest rate and the annual percentage rate, or APR. Although they both describe how much you’ll pay, they’re not the same thing. The APR, or annual percentage rate, is the sum total of all your borrowing costs expressed as a percentage interest rate charged on the loan balance. It is not the same as your interest rate.

For example: After fees, the original interest rate quote of 5.875% might work out to a 6% APR loan, where the interest costs about $6,000 per year for every $100,000 borrowed, and the principal payments are calculated based on the length of the loan term (for example 15, 20, or 30 years).

Playing The Indexes

The interest rates on adjustable rate mortgages (ARM) readjust periodically based on changes in an index.

Key Takeaways

  • An ARM index is a base interest rate that is used to compute an adjustable rate mortgage interest for some time period.
  • This index or reference rate used can be the prime rate, LIBOR, EURIBOR, the Fed Funds rate, the rate on U.S. Treasury bills, etc.
  • The fully indexed ARM rate will include the index rate plus some pre-determined margin of additional interest (e.g., LIBOR +2%).

Points

When mortgage companies are competing by offering lower interest rates, they may charge you a one-time pre-paid interest payment calculated as a percentage of the loan. Called "points”, this may range from 0.25% to 2% of the loan balance, and is usually paid up front. Points are tax-deductible; consult with your tax advisor on any possible tax benefits or consequences.

Appraisal Cost

Lenders hire experienced, often independent appraisers, which must be approved by the lender, to evaluate the property’s purchase price, condition and size compared to similar recent neighborhood or vicinity sales. This helps the lender ensure the purchase price is not too high, and gives the lender more confidence in getting repaid in the event they are forced to sell the property if the borrower defaults. The appraisal costs vary depending on the property, type of appraisal, and region. Make no mistake-if the property does not appraise for the purchase price, you cannot get a mortgage on it.

Miscellaneous Fees

Expect to see various charges incurred in the processing of your loan which might include notary, courier, remote closings, "doc stamps" on title and mortgages, and county recording fees.

Prepayment Penalties

These vary widely, so be sure you know in advance if your lender will charge a penalty if you refinance or sell, and the certain period during which the penalties apply.


GET PRE-APPROVED
Does it Help to be Pre-Qualified by a Lender?

The pre-qualification process can be completed fairly quickly, based on less information than is required for getting pre-approved. While it is fast and it does help, a pre-qualification letter is an opinion from a lender of the maximum amount of real estate you can qualify for. In a competitive seller’s market, an offer from a buyer with a pre-qualification letter could lose out to a person who is pre-approved.

Get Pre-Approved by a Lender

There are several benefits to going the extra mile and getting a pre-approval letter. First of all, you will know exactly how much real estate you can afford. When you find a property you want to buy, your offer will be far better positioned than someone less prepared. You are giving the seller a much better reason to accept your offer than possibly one that is slightly higher. Finally, being pre-approved is more efficient; it speeds up the process--it reduces the amount of time it will take your lender to fund and close your loan. Be prepared to provide comprehensive documentation, which the lender may independently verify, including but not limited to:

  • Job and career status
  • Income
  • Monthly debt payments
  • Cash available
  • Total assets and debts

Mortgage Brokers and Lenders – Who Does What?

The mortgage broker is the person or company who is your main contact throughout your loan. They are often able to work with a number of lenders, who actually provide the funds for the loan. Typically, the lender pays the mortgage broker a fee for acting as the intermediary and providing all of the customer interactions and service.


APPLICATIONS & PROCESSING
Filling Out the Application

There are standard forms to be completed when applying for a mortgage loan. Some mortgage brokers keep these on their website so you can fill out and submit the forms on line. The information will be verified and used to qualify you for your loan, so take the time to answer questions completely as possible and accurately.

Documentation

The mortgage broker will need copies of the documents from your Buyer's file you began assembling in the first phase of the loan process, including:

  • Either 2 years of W-2 forms from your employer or 2 years of tax returns if you are self-employed
  • Recent pay stubs (60 days back)
  • 3 months bank and money market statements
  • Brokerage, mutual fund and retirement account statements
  • Proof of other income sources (alimony, trusts, rental income, etc.)
  • Credit card statements
  • Auto / boat / student / miscellaneous loan documents
  • Drivers’ license or other form of official ID.
  • If you’re not a US citizen, then a copy of your green card or visa
  • Copy of documents for any existing mortgage debts if you are applying for a home equity line of credit or another mortgage

Stay in Communication

The lender will have an analyst, usually called an “underwriter”, crunch your numbers and verify your documentation to confirm your ability to repay the loan. Once you are in contract on a property, there may also be a loan approval committee which will meet to review the underwriters’ conclusions regarding your creditworthiness, and to evaluate the property on which they are lending. This is called the underwriting process, and questions are bound to arise. Be sure to return your mortgage broker’s calls promptly to keep the process moving forward smoothly. Check in with your loan officer or mortgage broker periodically.

HOW TO CALCULATE CASH TO CLOSE
To calculate the cash to close amount you will need for closing day, use the following equation:

Step 1: Take the total closing costs and subtract any closing costs that are being rolled into the loan amount.
Step 2: Take that number and add the down payment amount.
Step 3: Take the number calculated in Step 2 and subtract the deposit amount you made when the offer was accepted.
Step 4: Take the number calculated in Step 3 and subtract any seller credits.
Step 5: Take the number calculated in Step 4 and add or subtract any adjustments, overpayment refunds, and any other credits. This final total will be your cash to close amount.

You should now be ready for your closing day.


FUNDING
The Signing and Closing

When the lender is ready to “close” your loan, or “fund” it, your real estate agent, your lender or mortgage broker, and the escrow officer or title company will have you sign the final loan and other documents at a closing. Signing will typically take place in front of a notary, if it is a remote closing or what is commonly called a "mail away", or in front of an escrow officer, usually at a title company. Ask your loan officer or mortgage broker if there is anything you need to do to prepare for this closing, such as timely wiring funds to the escrow title company, bringing a photo ID or perhaps a cashiers’ check to make everything balance out at closing. Allow yourself enough time to review the documents for accuracy.

If funds are being wired: “Wiring instructions” specify the exact details and direct the electronic transfer of money between buyers, lenders, financial companies, and escrow/title companies. Always arrange to have the wiring instructions in place ahead of time and checked for accuracy AND CONFIRMED VIA TELEPHONE by both the sender and recipient of the expected wire. It is critical that these instructions be exact, and even so, delays are all too common if each of these recommendations are not followed.

Congratulations!

Your loan officer or mortgage broker, escrow officer or title company, as well as your real estate agent will probably call you to confirm that the money has been wire transferred and received and that the loan is "clear to close" or has closed. Always follow up with a phone call to confirm that your loan funds went where they were supposed to go and were received by who was supposed to receive them. It is mandatory you keep perfect records of this critical phase of the transaction once completed.

LEGALLY SOUND & TRUSTED

It's important. Contracts, addendums and other documents associated with a successful real estate transaction must be carefully crafted to prevent legal issues down the road. Knowing how to write it right the first time helps to avoid snags and issues as the transaction moves along. Knowing what to look for in other Realtor's documents is essential. Then there is the closing process which demands close monitoring and explicit performance. Our knowledge and experience will help safeguard your interests.

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Real Estate is Complicated


A real estate transaction is no place to trust an inexperienced Broker or Agent. The modern day real estate transaction has many complex parts and processes that need to be carefully prepared, monitored and performed. If we see something that requires legal advice from a licensed attorney, we will know when to recommend that you consult one for a legal opinion. *No Realtor is permitted to give you legal advice. Only an attorney can do that.


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Closings Can Be Challenging


Though it may seem like a closing is a lot of complex work, it’s worth the time and effort to get things right without last minute hurrying and stress. It involves many steps and procedural formalities. A lengthy list of things has to happen--mostly in the proper order--before you can close. We will carefully guide you through the entire process keeping your best interests in the forefront.


LET'S GET STARTED

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Our promise to you

"We will keep your best interests in the forefront.
Ahead of all others. Ahead of our own.”

- Rick Brunsman Principal Broker