Before you get a mortgage there are a number of things you should know that will make the process much quicker, easier and safer for you.
Closing Costs: Closing costs are the various fees associated with the loan. These include the appraisal fee, the fee for title insurance, the mortgage filing fees, the underwriting and processing fees, origination fees and discount fees. The fees to pay particular attention to are the origination, discount and processing fees. These are fees that are generally discretionary to the broker or banker handling the loan. As a general rule, the origination fee should be no more than 1% of the total loan amount and the processing fee should be no more than $300. If you are being charged a discount fee, this means that you are paying extra money up front to get a lower interest rate. This is fine if you want to do this, but you are not required to do this.
Another key fact to understand when it comes to closing costs is the difference between how they are applied on a purchase mortgage compared to a refinance mortgage. On a purchase loan, the closing costs are paid outside of the loan amount. In other words, the closing costs are not financed into the loan and must be paid separately, either from the buyer's personal funds or by the seller from their equity in the property. On the other side of the coin, the closing costs can be part of the loan amount in a refinance loan. In other words, the closing costs can be included in the loan and do not have to be paid out of pocket.
Appraisal: The appraisal is a key factor in any mortgage transaction. The amount of the mortgage is based upon what the property is worth in the current market and the appraisal is what establishes that amount. Appraisals take into account the age and features of the house, the amount of square feet of living space and recent sales of similar properties in the same neighborhood. It is important to understand that the appraisal is a reflection of the current local real estate market. If homes are not selling well and taking a long time to sell, this will have a negative affect on the appraisal. If the real estate market is strong, the property will tend to appraise higher.
Time line: Be prepared for the loan process to take at least four weeks. There are exceptions to every rule, and mortgages will sometimes close in just 1 to 2 weeks, but this is rare. The loan process, especially recently, is a complex and detailed process with many components. If any part of the process is delayed, the whole loan is delayed. However, with a competent loan officer or mortgage banker, the loan will generally take 3 to 4 weeks.
Documentation: Be prepared to prove your income and assets. Usually, you will have to provide two recent pay stubs and the last two W2s, or complete tax returns for the past two years. Any money in the bank or in retirement accounts will need to be verified with recent statements.
Disclosures: In any loan process, the lender is required to provide initial disclosures detailing rate, closing costs and federal disclosures within 72 hours of pulling your credit report. The two documents to pay the most attention to are the Good Faith Estimate (GFE) and the Truth In Lending (TIL) disclosures. The GFE is an itemization of all the closing costs you will be charged. The TIL discloses the interest rate you will be charged and if the rate is fixed or adjustable. In all, you understands how the appraisal affects the loan process, know what documentation will be required, know what to look for on the closing costs disclosures and understand the timeline of the loan process, you will be able to get a loan that suits you with a minimum of stress and hassle.
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