Below is a brief description of your mortgage options and ways to get the process started:
Most lenders would consider a conventional mortgage as a loan that conforms to the guidelines set forth by Freddie Mac and Fannie Mae, the two government sponsored enterprises (GSEs) ….(read more)
A jumbo mortgage is a mortgage with a loan amount above conventional conforming loan limits. This standard is set by the two government-sponsored enterprises …..(read more)
A home equity loan (sometimes abbreviated HELOC) is a type of loan in which the borrower uses the equity in their home as collateral. These loans are sometimes useful to help finance …..(read more)
The FHA’s goals are to improve housing standards and conditions, provide an adequate home financing system through insurance of mortgage loans and to stabilize the mortgage market. …..(read more)
A lifetime loan available to seniors, and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner …..(read more)
The financing for this loan will include the purchase price, as well as the improvements you are either required to do to be able to live in the home, or that you want to do, such as upgrade the kitchen…..(read more)
The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans …..(read more)
While most mortgage web sites offer a glossary containing hundreds of real estate and lending related terms, we wanted to highlight the top terms that most borrowers will hear several times …..(read more)
One of the most important items to remember when looking into financing is there is sometimes a difference in the amount a borrower can qualify for vs what’s in their budget for a comfortable …..(read more)
Whether you are purchasing, doing a rate/term refinance or taking equity out of your property through a cash out refinance, occupancy type is a major factor in determining the amount of down payment …..(read more)
Mortgage insurance (also known as mortgage guaranty) is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. …..(read more)
FHA insurance is required for any FHA mortgage, irrespective of the size of the down payment provided. The premiums for both insurances get cancelled at a certain point …..(read more)
How can a fully approved loan get denied for funding after the borrower has signed loan docs? Simple, the underwriter pulls a new credit report to verify that there hasn’t been any new activity since …..(read more)
The VA Funding Fee is an essential component of the VA home loan program and is a requirement of any veteran taking advantage of this zero down payment government loan program. …..(read more)
One of the main reasons to make sure you’re working with aprofessional real estate buying team is the fact that you get to lean on their combined experience to ensure a smooth and painless closing.
Some agents and loan officers can close upwards of 20+ transactions a month. Compared to the 5-7 homes an adult may purchase in his/her lifetime, you can obviously see where it helps to have a few trusted professionals in your corner.
The closing process can be argued as the most critical part of a real estate transaction where the most amount of things can go extremely wrong. This is where that professional team will really prove their value.
If all of the initial questions, concerns, documents and contingencies were addressed early in the mortgage approval and home shopping process, then you should feel confident about walking into the closing with all bases covered.
However, we’ve listed a few bullets, links and frequently asked questions on this page to help highlight a few important topics you may want to be aware of during the closing process.
Six Prior-To-Closing Conditions That Can Delay Your Escrow:
Even though your lender may have provided a Pre-Approval and/or Mortgage Commitment Letter, there may still be several conditions that could delay a closing.
Sometimes buyers and agents let their guard down with the relief of getting closing documents to title, and they forget that there may still be a bunch of work to be done.
Prior-to-Closing conditions are items that an underwriter would require after reviewing your file, which could simply be an updated pay-stub, a letter of explanation of recent credit inquiries or more clarification on information found in a tax return.
Here is a list of a few Prior-to-Closing conditions you should be aware of:
You may have supplied your lender with a mountain of documentation, but make sure you continue to save all of your new paystubs and financial statements as you move through the process. Chances are your lender will want updated documents as you get closer to closing.
2. Credit Inquires –
If you have had recent inquires on your credit report, a lender may check to see if any new credit has been extended that may not yet actually appear on your report.
An inquiry could be for something minor such as a new cell phone, but can also be something that will impact your ability to qualify for the loan such as a car payment or another loan that you co-signed to help out a family member.
……(read more on Credit Inquires)
3. Employment Verification-
Your lender will be making sure you are still actively employed in the position that is listed on your loan application, and they will do this more than once in the process.
So make sure regular life events, such as maternity leave or a scheduled surgery, have been brought to your loan officer’s attention ahead of time.
Once an underwriter starts to uncover surprises, they may hold a file up for a while to do a bunch of unnecessary digging to find out if there are any other issues that the borrower failed to mention.
Lenders will want to source where every dollar for the transaction is coming from and verify that it has been deposited into your bank account. If funds need to be liquidated from a retirement account or home equity line start the process sooner rather than later.
Sometimes lenders will not release all of the funds immediately after a large deposit so it is important to have these in place well ahead of your closing date. The same applies for Gift Funds-make sure the donor is aware of your time frame and is willing to supply the required documentation to your lender.
……(read more on Making Sure Your Cash To Close Comes From Proper Source)
Typically, title and judgment searches are performed farther along in the mortgage process because they are not ordered until after you receive your mortgage commitment. These searches could reveal judgments against your name or the sellers along with liens against the property you are buying or selling.
Sometimes, even an old mortgage appears against the property since it was never properly discharged, or if you have a common name items could appear that are really not yours.
Either way, the underwriter and title company will want to be sure that these are cleared up before the closing.
……(read more on Title and Judgment Searches)
Lenders want to review your policy several days prior to closing to make sure coverage is sufficient and accurately account for it in your monthly payment.
Insurance coverage can sometimes be difficult to obtain depending on your past history with claims, credit, location and type of the property.
……(read more on Homeowners and Flood Insurance Coverage)
Items to Bring to Closing Appointment:
Your real estate agent and/or mortgage loan officer should be providing you with a final list of documents that need signatures or updated verifications, so the general list of items needed at closing is quite basic:
1. Funds To Close –
If you are required to bring in a down payment and/or pay for closing costs to finalize the transaction, you’ll need to bring a certified check from a bank. The escrow company, your agent and loan officer should provide you with a full breakdown of all fees / costs involved in the transaction.
While these final numbers may be more accurate than the initial Good Faith Estimated which was provided at the beginning of the application process, there will still be a small buffer amount added by escrow to cover any prepaid interest or other minor changes.
If you don’t have to bring in any funds to close, then you might actually be getting a portion of the Earnest Money Deposit back.
Keep in mind, it is important to make sure these funds to close come from the proper sources.
2. Proof of Identification –
Official Drivers License or State ID card. Passports will work as well.
Frequently Asked Questions:
Q: Does It Matter Which Day of the Month I Close?
The date of your closing is all about how you view the money being applied. Pay now or pay later, but it will always be collected.
Let’s first look at how mortgage payments are broken down:
When you pay your rent for the month, you are actually paying for the right to live in the house for the upcoming month.
However, your mortgage payment is broken into four separate components; principle, interest, taxes and insurance (PITI).
The principle is paid towards the upcoming month, interest is paid towards the previous month and the taxes and insurance are deposited into an impound account.
As far as closing on a particular day of the month to save money on interest payments, it depends on the type of loan program you are using.
If you’re more concerned about successfully closing with the least amount of stress, then early to mid month is usually the best time to close.
Q: I am refinancing an FHA loan, will it benefit me to close in the beginning of the month?
No, in fact FHA refinances should always close at the end of the month because you are responsible for the entire month’s interest.
Q: Should I be concerned about the closing date on a conventional loan refinance?
Not really, however you can save a couple dollars by closing early in the month, just avoid closing on a Friday because you could be responsible for the interest on two loans over the weekend.
- 1 month paystubs
- 2 years W2’s
- 2 years 1099’s (if applicable)
- 2 years taxes (all schedules)
- 2 years 1120’s, 1065’s and K1’s (if applicable)
- 2 months most recent bank statements (all pages)
- 2 months most recent retirement statements 401K, IRA, Etc. (all pages)
- Hazard insurance and invoice paid/due
- Heloc agreement for subordinating 2nds (if applicable)
- Mortgage statement
- Property taxes
- HOA invoice (if applicable)
- Hazard and taxes for all rental properties (if applicable)
- Purchase Contract (if applicable)
Most people are surprised to learn what appraisers actually look at when determining the value of a real estate property.
A common misconception homeowners generally have is that the value of their home is determined after the appraiser has completed their physical property inspection.
However, the appraiser actually already has a good idea of the property’s value by the time they have scheduled an appointment to stop by the property.
The good news is that you don’t have to worry so much about pushing back an appointment a few days just to “clean things up” in order to help influence the value of your property.
While a clean house will certainly make it easier for the appraiser to notice improvements, the only time you should be concerned about “clutter” is if it is damaging to the dwelling.
The Key Components Addressed In An Appraisal
Location, view, topography, lot size, utilities, zoning, external factors, highest and best use, landscaping features…
Quality of construction, finish work, fixed appliances and any defining features
Age, deterioration, renovations, upgrades, added features
Health & Safety:
Structural integrity, code compliance
Above grade and below grade improvements
Is the property conforming to the neighborhood?
Is the property functional as built – style and use?
Garages, Carports, Shops, etc..
Curb appeal, lot size, & conforming to the neighborhood are obvious to the appraiser when they drive down into the neighborhood pull up in front of your home.
When entering your home, they are going to look at the overall design, condition, finish work, upgrades, any defining features, functional utility, square footage, number of rooms and health and safety items.
Be sure to have all carbon monoxide and smoke detectors in working condition.
Since the appraisal provides half the weight in any credit decision involving the security of real estate, the appraisal should be done by a qualified, licensed appraiser whom is familiar with your neighborhood, and the type of home you are buying, selling or refinancing.
If you’re interested in what specifically appraisers are looking for, here is a copy of the blank 1040 URAR form that is used by every appraiser in the country.
Related Update on HVCC:
Appraisers hired for a mortgage transaction on a conforming loan are chosen from a pool of qualified appraisers at random. Neither you nor your lender has the flexibility of deciding which appraiser will inspect your home.
This recent change was brought on with the Home Valuation Code of Conduct HVCC, and is effective with conventional loans originated on or after May 1, 2009.
Related Appraisal Articles:
Hey, I gave my real estate agent a $5000 Earnest Money Deposit check… Where does that money go?
According to Wikipedia:
Earnest Money – an earnest payment (sometimes called earnest money or simply earnest, or alternatively a good-faith deposit) is a deposit towards the purchase of real estate or publicly tendered government contract made by a buyer or registered contractor to demonstrate that he/she is serious (earnest) about wanting to complete the purchase.
When a buyer makes an offer to buy residential real estate, he/she generally signs a contract and pays a sum acceptable to the seller by way of earnest money. The amount varies enormously, depending upon local custom and the state of the local market at the time of contract negotiations.
An Earnest Money Deposit (EMD) is simply held by a third-party escrow company according to the terms of the executed purchase contract.
*It’s important to keep in mind that the EMD may actually be cashed at the time escrow is opened, so make sure your funds are from the proper sources.
- Earnest Money is submitted to an escrow company with the accepted purchase contract
- At the close of escrow, the EMD is credited towards the down payment and / or closing costs
- If there are no closing costs or down payment, the EMD is refunded back to the buyer
Who Doesn’t Get Your Earnest Money:
- Selling Real Estate Agent – A conflict of interest
- Sellers – Too risky
- Buying Agent – They shouldn’t have your money in their account
Related Articles – Closing Process / Costs
By including title insurance when purchasing property, your title insurer takes on accountability for legal expenses to defend your property title, should it ever be challenged.
Many different occurrences can come into play to warrant the need for title insurance.
The title company responsible will then take on the legal expenses to defend the property for as long as you are in possession of an interest in the property under the title.
If the defense is not successful, you will be reimbursed for any loss of value of the property.
Common Things Title Insurance Covers:
1. UNDISCLOSED HEIRS, FORGED DEEDS, MORTGAGE, WILLS, RELEASES AND OTHER DOCUMENTS
2. FALSE IMPRISONMENT OF THE TRUE LAND OWNER
3. DEEDS BY MINORS
4. DOCUMENTS EXECUTED BY A REVOKED OR EXPIRED POWER OF ATTORNEY
5. PROBATE MATTERS
7. DEEDS AND WILLS BY PERSON OF UNSOUND MIND
8. CONVEYANCES BY UNDISCLOSED DIVORCED SPOUSES
9. RIGHTS OF DIVORCED PARTIES
10. ADVERSE POSSESSION
11. DEFECTIVE ACKNOWLEDGEMENTS DUE TO IMPROPER OR EXPIRED NOTARIZATION
12. FORFEITURES OF REAL PROPERTY DUE TO CRIMINAL ACTS
13. MISTAKES AND OMISSIONS RESULTING IN IMPROPER ABSTRACTING
14. ERRORS IN TAX RECORDS
Related Articles – Closing Process / Costs
* Disclaimer – all information in this article is accurate as of the date this article was written *
The FHA Mortgage Insurance Premium is an important part of every FHA loan.
There are actually two types of Mortgage Insurance Premiums associated with FHA loans:
1. Up Front Mortgage Insurance Premium (UFMIP) – financed into the total loan amount at the initial time of funding
2. Monthly Mortgage Insurance Premium – paid monthly along with Principal, Interest, Taxes and Insurance
Mortgage Insurance is a very important part of every FHA loan since a loan that only requires a 3.5% down payment is generally viewed by lenders as a risky proposition.
Without FHA around to insure the lender against a loss if a default occurs, high LTV loan programs such as FHA would not exist.
Calculating FHA Mortgage Insurance Premiums:
Up Front Mortgage Insurance Premium (UFMIP)
UFMIP varies based on the term of the loan and Loan-to-Value.
For most FHA loans, the UFMIP is equal to 2.25% of the Base FHA Loan amount (effective April 5, 2010).
>> If John purchases a home for $100,000 with 3.5% down, his base FHA loan amount would be $96,500
>> The UFMIP of 2.25% is multiplied by $96,500, equaling $2,171
>> This amount is added to the base loan, for a total FHA loan of $98,671
Monthly Mortgage Insurance (MMI):
- Equal to .55% of the loan amount divided by 12 – when the Loan-to-Value is greater than 95% and the term is greater than 15 years
- Equal to .50% of the loan amount divided by 12 – when the Loan-to-Value is less than or equal to 95%, and the term is greater than 15 years
- Equal to .25% of the loan amount divided by 12 – when the Loan-to-Value is between 80% – 90%, and the term is greater than 15 years
- No MMI when the loan to value is less than 90% on a 15 year term
The Monthly Mortgage Insurance Premium is not a permanent part of the loan, and it will drop off over time.
For mortgages with terms greater than 15 years, the MMI will be canceled when the Loan-to-Value reaches 78%, as long as the borrower has been making payments for at least 5 years.
For mortgages with terms 15 years or less and a Loan -to-Value loan to value ratios 90% or greater, the MMI will be canceled when the loan to value reaches 78%. *There is not a 5 year requirement like there is for longer term loans.
Related Articles – Mortgage Approval Process:
- Basic Mortgage Terms
- How Much Can I Afford?
- Common Documents Required For A Mortgage Pre-Approval
- Top 8 Questions To Ask Your Lender During Application Process
- What’s The Difference Between An Investment Property, Second Home and Primary Residence?
- Seven Items Real Estate Agents Need To Know About Your Mortgage Approval
For homeowners interested in making some property improvements without tapping into their savings or investment accounts, the two main options are to either take out a Home Equity Line of Credit (HELOC), or do a cash-out refinance.
According To Wikipedia:
A HELOC differs from a conventional home equity loan in that the borrower is not advanced the entire sum up front, but uses a line of credit to borrow sums that total no more than the credit limit, similar to a credit card.
HELOC funds can be borrowed during the “draw period” (typically 5 to 25 years). Repayment is of the amount drawn plus interest.
A HELOC may have a minimum monthly payment requirement (often “interest only”); however, the debtor may make a repayment of any amount so long as it is greater than the minimum payment (but less than the total outstanding).
Another important difference from a conventional loan is that the interest rate on a HELOC is variable. The interest rate is generally based on an index, such as the prime rate. This means that the interest rate can change over time. Homeowners shopping for a HELOC must be aware that not all lenders calculate the margin the same way. The margin is the difference between the prime rate and the interest rate the borrower will actually pay.
A Home Equity Loan is similar to the Line of Credit, except there is a lump sum given to the borrower at the time of funding and the payment terms are generally fixed. Both a Line of Credit and Home Equity Loan hold a subordinate position to the first loan on title, and are typically referred to as a “Second Mortgage”. Since second mortgages are paid after the first lien holder in the event of default foreclosure or short sale, interest rates are higher in order to justify the risk and attract investors.
Measuring The Different Between HELOC vs Cash-Out Refinance:
There are three variables to consider when answering this question:
2. Costs or Fees to obtain the loan
3. Interest Rate
1. Timeline –
This is a key factor to look at first, and arguably the most important. Before you look at the interest rates, you need to consider your time line or the length of time you’ll be keeping your home. This will determine how long of a period you’ll need in order to pay back the borrowed money.
Are you looking to finally make those dreaded deferred home improvements in order to sell at top dollar? Or, are you adding that bedroom and family room addition that will finally turn your cozy bungalow into your glorious palace?
This is a very important question to ask because the two types of loans will achieve the same result – CASH — but they each serve different and distinct purposes.
A home equity line of credit, commonly called a HELOC, is better suited for short term goals and typically involves adjustable rates that can change monthly. The HELOC will often come with a tempting feature of interest only on the monthly payment resulting in a temporary lower payment. But, perhaps the largest risk of a HELOC can be the varying interest rate from month to month. You may have a low payment today, but can you afford a higher one tomorrow?
Alternatively, a cash-out refinance of your mortgage may be better suited for securing long term financing, especially if the new payment is lower than the new first and second mortgage, should you choose a HELOC. Refinancing into one new low rate can lower your risk of payment fluctuation over time.
What are the closing costs for each loan? This also goes hand-in-hand with the above time line considerations. Both loans have charges associated with them, however, a HELOC will typically cost less than a full refinance.
It’s important to compare the short-term closing costs with the long-term total of monthly payments. Keep in mind the risk factors associated with an adjustable rate line of credit.
The first thing most borrowers look at is the interest rate. Everyone wants to feel that they’ve locked in the lowest rate possible. The reality is, for home improvements, the interest rate may not be as important as the consideration of the risk level that you are accepting.
If your current loan is at 4.875%, and you only need the money for 4-6 months until you get your bonus, it’s not as important if the HELOC rate is 5%, 8%, or even 10%. This is because the majority of your mortgage debt is still fixed at 4.875%.
Conversely, if you need the money for long term and your current loan is at 4.875%, it may not make financial sense to pass up an offer on a blended rate of 5.75% with a new 30-year fixed mortgage. There would be a considerable savings over several years if variable interest rates went up for a long period of time.
Choosing between a full refinance and a HELOC basically depends on the level of risk you are willing to accept over the period of time that you need money.
A simple spreadsheet comparing all of the costs and payments associated with both options will help highlight the total net benefit.
Related Article – Refinance Process:
- Refinance Process Overview
- Mortgage Approval Process
- Four Possible Reasons To Refinance
- Calculating The Net Benefit Of A Refinance
- What Do Appraisers Look For When Determining A Property’s Value?
- Understanding The Difference Between Appraised Value vs Neighborhood Listing Comps
- Five Myths About Home Values